<PAGE> 1
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED AUGUST 20, 1999
CONSECO LOGO
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 22, 1998)
10,000,000 PREFERRED SECURITIES
CONSECO FINANCING TRUST VII
% TRUST ORIGINATED PREFERRED SECURITIESSM("TOPRS(SM)")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED BY
CONSECO, INC.
----------------------
THE TRUST:
Conseco Financing Trust VII is a Delaware business trust which will:
- - sell preferred securities to the public;
- - sell common securities to Conseco;
- - use the proceeds from these sales to buy an equal principal amount of %
Deferrable Interest Subordinated Debentures due 2029 of Conseco; and
- - distribute the cash payments it receives from Conseco on the debentures to the
holders of the preferred securities and the common securities.
QUARTERLY DISTRIBUTIONS:
- - For each preferred security that you own, you will receive cumulative cash
distributions accumulating from August , 1999 at an annual rate of % of
the liquidation amount of $25 per preferred security, on March 31, June 30,
September 30 and December 31 of each year, beginning September 30, 1999.
- - Conseco may defer interest payments on the debentures at any time, and from
time to time, for up to 20 consecutive quarterly periods. If Conseco does
defer interest payments, the Trust will also defer payment of distributions on
the preferred securities to you. However, deferred distributions will
themselves accumulate distributions at an annual rate of % (to the extent
permitted by law).
OPTIONAL REDEMPTION:
- - The Trust may redeem some or all of the preferred securities at times
discussed herein at a redemption price equal to $25 per preferred security
plus accumulated distributions, if any.
CONSECO:
- - Conseco will effectively guarantee, fully and unconditionally, the payment by
the Trust of amounts due on the preferred securities as discussed herein and
in the accompanying prospectus.
We plan to list the preferred securities on the New York Stock Exchange
under the symbol "CNCPrH." Trading on the New York Stock Exchange is expected to
commence within 30 days after the preferred securities are first issued.
INVESTING IN THE PREFERRED SECURITIES INVOLVES CERTAIN RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE S-6 OF THIS PROSPECTUS
SUPPLEMENT.
----------------------
<TABLE>
<CAPTION>
PER
TOPRS(SM) TOTAL
--------- -----
<S> <C> <C>
Public offering price(1).................................... $ $
Underwriting commission to be paid by Conseco............... $ $
Proceeds, before expenses, to the Trust..................... $ $
</TABLE>
(1) Plus accumulated distributions from August , 1999, if settlement
occurs after that date
The underwriters may also purchase up to an additional 1,500,000 preferred
securities at the public offering price within 30 days after the date of this
prospectus supplement to cover over-allotments. Conseco will pay the
underwriting commission for each additional preferred security purchased.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The preferred securities will be ready for delivery in book-entry form only
through The Depository Trust Company on or about August , 1999.
----------------------
MERRILL LYNCH & CO.
----------------------
A.G. EDWARDS & SONS, INC.
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
----------------------
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
The date of this prospectus supplement is August , 1999.
(sm)"Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary Information -- Q&A.................................. S-3
Risk Factors................................................ S-6
Conseco Financing Trust VII................................. S-8
Capitalization.............................................. S-10
Ratios of Earnings to Fixed Charges and Earnings to Fixed
Charges, Preferred Stock Dividends and Distributions on
Company-obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts........................... S-11
Use of Proceeds............................................. S-11
Selected Consolidated Financial Data........................ S-12
Conseco..................................................... S-15
Description of Securities................................... S-17
Certain Terms of the Preferred Securities................... S-17
Certain Terms of the Debentures............................. S-23
Certain United States Federal Income Tax Consequences....... S-26
ERISA Considerations........................................ S-30
Underwriting................................................ S-32
Legal Matters............................................... S-34
Experts..................................................... S-34
PROSPECTUS
Available Information....................................... 3
Incorporation of Certain Documents by Reference............. 4
The Company................................................. 5
The Conseco Trusts.......................................... 5
Use of Proceeds............................................. 6
Ratios of Earnings to Fixed Charges and Earnings to Fixed
Charges and Preferred Stock Dividends and Earnings to
Fixed Charges, Preferred Stock Dividends and Distributions
on Company-obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts........................... 6
Description of Debt Securities.............................. 7
Description of Capital Stock................................ 16
Description of Depositary Shares............................ 20
Description of Warrants..................................... 23
Description of Preferred Securities of the Conseco Trusts... 23
Description of the Trust Guarantees......................... 25
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 27
Plan of Distribution........................................ 28
Special Note Regarding Forward-Looking Statements........... 29
Legal Matters............................................... 30
Experts..................................................... 30
</TABLE>
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement or the prospectus. We have not, and the
underwriters have not, authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not, and the underwriters are not, making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus supplement or the prospectus, as well as information we previously
filed with the Securities and Exchange Commission and incorporated by reference,
is accurate as of the date on the front cover of this prospectus supplement
only. Our business, financial condition, results of operations and prospects may
have changed since that date.
The following information concerning Conseco, the Trust, the preferred
securities, the trust guarantee and the subordinated debentures adds to, and
should be read in conjunction with, the information contained in the
accompanying prospectus. Capitalized terms used in this prospectus supplement
have the same meaning as in the accompanying prospectus. Except as otherwise
noted, all information in this prospectus supplement assumes no exercise of the
underwriters' over-allotment option.
S-2
<PAGE> 3
SUMMARY INFORMATION -- Q&A
This prospectus supplement and the accompanying prospectus are referred to
collectively as the "Prospectus Documents" and should be read together. This
summary highlights selected information from the Prospectus Documents to help
you understand the preferred securities. You should carefully read the
Prospectus Documents to understand fully the terms of the preferred securities,
as well as the tax and other considerations that are important to you in making
a decision about whether to invest in the preferred securities. You should pay
special attention to the "Risk Factors" section beginning on page S-6 of this
prospectus supplement to determine whether an investment in the preferred
securities is appropriate for you.
For your convenience, we make reference to specific page numbers in this
prospectus supplement (pages S-1 through S-34) and the accompanying prospectus
(pages 1 through 30) for more detailed information regarding some of the terms
and concepts used throughout this prospectus supplement.
WHAT ARE THE PREFERRED SECURITIES?
Each preferred security represents an undivided beneficial interest in the
assets of the Trust. The underwriters are offering 10,000,000 preferred
securities at a public offering price of $25 for each preferred security. The
underwriters may also purchase up to an additional 1,500,000 preferred
securities at the public offering price within 30 days after the date of this
prospectus supplement to cover over-allotments, if any. See "Underwriting" on
page S-32.
State Street Bank and Trust Company will act as the property trustee and
First Union Trust Company, National Association will act as the Delaware
Trustee, in each case until removed or replaced by the holder of the common
securities. For the purposes of compliance with the provisions of the Trust
Indenture Act, State Street Bank and Trust Company will also act as indenture
trustee under the trust guarantee.
WHO IS THE TRUST?
Conseco Financing Trust VII, referred to as the Trust, is a Delaware
business trust. The Trust will sell its preferred securities to the public and
its common securities to Conseco. The Trust will use the proceeds from these
sales to buy a series of % Deferrable Interest Subordinated Debentures due
2029 (the "debentures") from Conseco with the same economic terms as the
preferred securities.
There are four trustees of the Trust. Two of the trustees are officers of
Conseco, referred to as the "administrative trustees." State Street Bank will
act as the property trustee of the Trust and First Union Trust Company, National
Association will act as the Delaware trustee.
State Street Bank will act as the property trustee and First Union Trust
Company, National Association will act as the Delaware Trustee, in each case
until removed or replaced by the holder of the common securities. For the
purposes of compliance with the provisions of the Trust Indenture Act, State
Street Bank will also act as indenture trustee under the trust guarantee.
WHO IS CONSECO?
We are a financial services holding company. We conduct and manage our
business through two operating segments, reflecting our major lines of business:
(1) insurance and fee-based operations and (2) finance operations. Our insurance
subsidiaries develop, market and administer supplemental health insurance,
annuity, individual life insurance, individual and group major medical insurance
and other insurance products. Our finance subsidiaries make, purchase, sell and
service consumer and commercial finance loans throughout the United States.
Our principal executive offices are located at 11825 N. Pennsylvania
Street, Carmel, Indiana 46032. Our telephone number is (317) 817-6100.
WHEN WILL YOU RECEIVE QUARTERLY DISTRIBUTIONS ON THE PREFERRED SECURITIES?
If you purchase the preferred securities, you will be entitled to receive
cumulative cash distributions at an annual rate of % of the liquidation
amount of $25 per preferred security. Distributions will accumulate from August
, 1999 and will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, beginning September 30, 1999.
S-3
<PAGE> 4
WHEN CAN PAYMENT OF YOUR DISTRIBUTIONS BE DEFERRED?
Conseco may, on one or more occasions, defer interest payments on the
debentures for up to 20 consecutive quarterly periods unless an event of default
under the debentures has occurred and is continuing. See page 11 for a
description of the events of default under the debentures. A deferral of
interest payments cannot extend beyond the stated maturity date of the
debentures (which is , 2029), unless the maturity date is changed at
the option of Conseco.
If Conseco defers interest payments on the debentures, the Trust will also
defer its distributions on the preferred securities to you. During this deferral
period, distributions will continue to accumulate on the preferred securities at
an annual rate of % of the liquidation amount of $25 per preferred
security. Also, the deferred distributions will themselves accumulate
distributions at an annual rate of % (to the extent permitted by law). Once
Conseco makes all deferred interest payments on the debentures, with accrued
interest, it may again defer interest payments on the debentures if no event of
default under the debentures has then occurred and is continuing.
During any period in which Conseco defers interest payments on the
debentures, Conseco will not be permitted to (with certain exceptions described
on pages S-24 and S-25):
- pay a dividend or make any other payment or distribution on its capital
stock;
- redeem, purchase or make a liquidation payment on any of its capital
stock; or
- make a principal, premium or interest payment, or repurchase or redeem,
any of its debt securities that rank equal with or junior to the
debentures.
If Conseco defers interest payments on the debentures, you will be required
to accrue interest income for United States federal income tax purposes before
you receive cash distributions. See "Certain United States Federal Income Tax
Consequences" on page S-26 and "Risk Factors -- Ability to Defer Distributions
Has Tax Consequences For You and May Affect the Trading Price of the Preferred
Securities" on page S-7.
WHEN CAN THE TRUST REDEEM THE PREFERRED SECURITIES?
The Trust will redeem all of the outstanding preferred securities when the
debentures are paid either at maturity on , 2029 or upon early
redemption.
Conseco will redeem the debentures when the debentures are paid at maturity
on , 2029, unless the maturity date is changed at the option of
Conseco and may redeem the debentures, in whole or, on or after ,
2004, in part, before their maturity at a redemption price equal to 100% of the
principal amount being redeemed plus accrued and unpaid interest to the date of
redemption:
- on one or more occasions any time on or after , 2004; and
- before , 2004, if certain changes in tax or investment company
law occur or will occur within 90 days (each of which is a "Special
Event" more fully described on pages S-18 and S-19).
If Conseco redeems any debentures before their maturity, the Trust will use
the cash it receives on the redemption of the debentures to redeem, on a pro
rata basis, preferred securities and common securities having an aggregate
liquidation amount equal to the aggregate principal amount of the debentures
redeemed, unless an event of default under the amended and restated declaration
of trust of the Trust, referred to as the "trust agreement," has occurred and is
continuing, in which case the preferred securities will be redeemed before any
common securities. An event of default with respect to the debentures or the
trust guarantee constitutes an event of default under the trust agreement. See
pages 11 and 26 for a description of an event of default in respect of the
debentures and the trust guarantee. The redemption price will be equal to $25
per security plus accumulated distributions, if any.
The debentures mature on , 2029, which date may be extended at
any time at the election of Conseco for one or more periods for up to 20
consecutive quarters, but in no event to a date later than the earlier of
, 2048 or the interest deduction date (referred to on page S-24),
provided that certain financial conditions are met. The maturity date may be
shortened to a date not earlier than 2004 if Conseco chooses to liquidate
S-4
<PAGE> 5
the Trust and distribute the debentures, subject to the receipt of any consents
required by the terms of any indebtedness of Conseco which may be outstanding
from time to time.
WHAT IS THE NATURE OF CONSECO'S GUARANTEE OF THE PREFERRED SECURITIES?
Conseco will fully and unconditionally guarantee the preferred securities
based on:
- its obligations to make payments on the debentures;
- its obligations under its guarantee of the preferred securities, referred
to as the "preferred securities guarantees"; and
- its obligations under the trust agreement and its subordinated indenture,
referred to as the "indenture".
If Conseco does not make a required payment on the debentures, the Trust
will not have sufficient funds to make the related payment on the preferred
securities. The preferred securities guarantee does not cover payments on the
preferred securities when the Trust does not have sufficient funds to make such
payments. Conseco's obligations under the debentures are junior to its
obligations to make payments on its Senior Indebtedness (as such term is defined
on page S-23), while Conseco's obligations under the preferred securities
guarantee are junior to its obligations to make payments on all of its other
liabilities, except as discussed elsewhere in the Prospectus Documents. See
"Risk Factors -- Conseco's Obligations Under the Debentures and the Preferred
Securities Guarantee Are Subordinated" on page S-6.
WHEN CAN THE DEBENTURES BE DISTRIBUTED TO YOU?
Conseco, as the sponsor of the Trust, has the right to dissolve the Trust
at any time if the dissolution and any distribution of the debentures would not
result in a taxable event to holders of the preferred securities. If Conseco
exercises this right to dissolve the Trust, the Trust will be liquidated by
distribution of the debentures to holders of the preferred securities and the
common securities.
WHAT HAPPENS IF THE TRUST IS DISSOLVED AND THE DEBENTURES ARE NOT DISTRIBUTED?
The Trust may also be dissolved in circumstances where the debentures will
not be distributed to you. In those situations, after satisfaction of creditors
of the Trust, if any, the Trust will be obligated to pay in cash the liquidation
amount of $25 for each preferred security plus accumulated distributions to the
date such payment is made. The Trust will be able to make this liquidation
distribution only if the debentures are redeemed by Conseco.
WILL THE PREFERRED SECURITIES BE LISTED ON A STOCK EXCHANGE?
We plan to list the preferred securities on the New York Stock Exchange
under the symbol "CNCPrH". Trading of the preferred securities on the New York
Stock Exchange is expected to commence within 30 days after the preferred
securities are first issued. You should be aware that the listing of the
preferred securities will not necessarily ensure that a liquid trading market
for the preferred securities will develop or be maintained.
If the Trust distributes the debentures, Conseco will use its best efforts
to list them on the New York Stock Exchange or any other exchange or other
organization on which the preferred securities are then listed.
IN WHAT FORM WILL THE PREFERRED SECURITIES BE ISSUED?
The preferred securities will be represented by one or more global
securities that will be deposited with, and registered in the name of, The
Depository Trust Company, New York, New York ("DTC") or its nominee. This means
that you will not receive a certificate for your preferred securities but,
instead, will hold your interest through DTC's system. The preferred securities
will be ready for delivery through DTC on or about August , 1999.
S-5
<PAGE> 6
RISK FACTORS
Your investment in the preferred securities will involve certain risks. You
should carefully consider the following discussion of risks, and the other
information included or incorporated by reference in the Prospectus Documents,
before deciding whether an investment in the preferred securities is suitable
for you.
CONSECO'S OBLIGATIONS UNDER THE DEBENTURES AND THE PREFERRED SECURITIES
GUARANTEE ARE SUBORDINATED
Conseco's obligations under the debentures are unsecured and will rank
junior in priority of payment to Conseco's Senior Indebtedness. This means that
Conseco cannot make any payments of principal (including redemption payments) or
interest on the debentures if it defaults on a payment on its Senior
Indebtedness. In addition, if the maturity of the debentures is accelerated,
then holders of Senior Indebtedness will be entitled to be paid in full before
Conseco makes any payment on the debentures. In the event of the bankruptcy,
liquidation or dissolution of Conseco, its assets would be available to pay
obligations under the debentures only after all payments had been made on its
Senior Indebtedness. At June 30, 1999, on a pro forma basis, as if on that date
Conseco and the Trust had issued and sold the preferred securities and the
debentures and applied the estimated net proceeds thereof, approximately $
million, as described in this prospectus supplement, the total amount of
Conseco's Senior Indebtedness would have been approximately $39.8 billion. See
"Capitalization" on page S-10 and "Use of Proceeds" on page S-11.
Conseco's obligations under the preferred securities guarantee are
unsecured and will rank in priority of payment:
- junior to all of Conseco's other liabilities, except those liabilities
made equal with or junior to the preferred securities guarantee by their
terms; and
- senior to all of Conseco's capital stock now outstanding or issued in the
future, including its common stock, and with any guarantee issued by it
now or in the future in respect of its capital stock or the capital stock
of any of its affiliates, including other business trusts like the Trust.
This means that Conseco cannot make any payments on the preferred
securities guarantee if it defaults on a payment of any of its other
liabilities, except those liabilities made equal with or junior to the preferred
securities guarantee by their terms. In the event of the bankruptcy, liquidation
or dissolution of Conseco, its assets would be available to pay obligations
under the preferred securities guarantee only after all payments had been made
on its other liabilities (except those liabilities made equal with or junior to
the preferred securities guarantee by their terms).
Neither the debentures nor the preferred securities guarantee will limit
the ability of Conseco and its subsidiaries to incur additional indebtedness,
including indebtedness that ranks senior in priority of payment to the
debentures and the preferred securities guarantee.
For more information, see "Certain Terms of the Debentures --
Subordination" on page S-23 and "Description of Trust Guarantees -- Status of
the Trust Guarantees" on page 27.
PREFERRED SECURITIES GUARANTEE COVERS PAYMENTS ONLY IF THE TRUST HAS CASH
AVAILABLE
The ability of the Trust to pay distributions on the preferred securities,
the redemption price of the preferred securities and the liquidation amount of
each preferred security is solely dependent upon Conseco making the related
payments on the debentures when due.
If Conseco defaults on its obligation to pay principal (including
redemption payments) or interest on the debentures, the Trust will not have
sufficient funds to pay distributions, the redemption price or the liquidation
amount of each preferred security. In those circumstances, you will not be able
to rely upon the preferred securities guarantee for payment of these amounts
because the preferred securities guarantee covers such payment only when the
Trust has sufficient funds on hand but fails to make such payment.
Instead, you may:
- seek legal redress against Conseco directly or seek other remedies to
collect your pro rata share of payments owed; or
- rely on the property trustee to enforce the Trust's rights under the
debentures.
S-6
<PAGE> 7
ABILITY TO DEFER DISTRIBUTIONS HAS TAX CONSEQUENCES FOR YOU AND MAY AFFECT THE
TRADING PRICE OF THE PREFERRED SECURITIES
So long as no event of default under the debentures has occurred and is
continuing, Conseco may, on one or more occasions, defer interest payments to
the Trust on the debentures as described in this prospectus supplement. See
"Certain Terms of the Debentures -- Option to Extend Interest Payment Period" on
page S-24. If Conseco defers interest payments on the debentures, the Trust will
defer distributions on the preferred securities to you during any deferral
period.
If Conseco defers interest payments on the debentures, you will be required
to accrue interest income, as original issue discount or "OID", in respect of
the deferred stated interest allocable to your share of the preferred securities
for United States federal income tax purposes. As a result, you will include
such income in gross income for United States federal income tax purposes prior
to the receipt of any cash distributions. In addition, you will not receive cash
from the Trust related to such income if you dispose of your preferred
securities prior to the record date on which distributions of such amounts are
made.
Conseco has no current intention of deferring interest payments on the
debentures. However, if Conseco exercises its right to do so in the future, the
preferred securities may trade at a price that does not fully reflect the value
of accrued but unpaid interest on the debentures. If you sell the preferred
securities during an interest deferral period, you may not receive the same
return on investment as someone else who continues to hold the preferred
securities. In addition, the existence of Conseco's right to defer payments of
interest on the debentures may mean that the market price for the preferred
securities (which represent an undivided beneficial interest in the debentures)
may be more volatile than other securities that do not have this right.
See "Certain United States Federal Income Tax Consequences" on page S-26
for more information regarding United States federal income tax consequences.
PREFERRED SECURITIES MAY BE REDEEMED BEFORE , 2004 IF A SPECIAL
EVENT OCCURS
Upon the occurrence of a Special Event before , 2004,
Conseco may redeem the debentures, in whole, but not in part, at a redemption
price equal to 100% of the principal amount thereof plus any accrued and unpaid
interest to the redemption date. The Trust will use the cash it receives on any
such redemption of the debentures to redeem an equivalent liquidation amount of
the preferred securities and the common securities on a pro rata basis, unless
an event of default under the trust agreement has occurred and is continuing, in
which case the preferred securities will be redeemed before any common
securities.
See "Certain Terms of the Preferred Securities -- Special Event Redemption"
on page S-18 for more information.
PREFERRED SECURITIES MAY BE REDEEMED ON OR AFTER , 2004 AT
CONSECO'S OPTION
At Conseco's option, the debentures may be redeemed, in whole or in part,
at any time on or after , 2004 at a redemption price equal to 100% of
the principal amount to be redeemed plus any accrued and unpaid interest to the
redemption date. See "Certain Terms of the Debentures -- Redemption" on page
S-24. You should assume that Conseco will exercise its redemption option when
prevailing interest rates at the time are lower than the interest rate on the
debentures, so that the redemption proceeds generally will not be able to be
reinvested in a comparable security at as high a rate. If Conseco exercises such
redemption option, the Trust will use the cash it receives on the redemption of
the debentures to redeem an equivalent liquidation amount of the preferred
securities and the common securities on a pro rata basis, unless an event of
default under the trust agreement has occurred and is continuing, in which case
the preferred securities will be redeemed before any common securities.
See "Certain Terms of the Preferred Securities -- Redemption" on page S-18
for more information.
DISTRIBUTION OF DEBENTURES MAY HAVE A POSSIBLE ADVERSE EFFECT ON TRADING PRICE
Conseco has the right to dissolve the Trust at any time if such dissolution
and any distribution of
S-7
<PAGE> 8
the debentures would not result in a taxable event to the holders of the
preferred securities. If Conseco dissolves the Trust, the Trust will be
liquidated by distribution of the debentures to holders of the preferred
securities and the common securities.
Under current United States federal income tax laws, a distribution of
debentures to you on the dissolution of the Trust would not be a taxable event
to you. Nevertheless, if the Trust is classified for United States federal
income tax purposes as an association taxable as a corporation at the time it is
dissolved, the distribution of debentures to you would be a taxable event. In
addition, if there is a change in law, a distribution of debentures to you on
the dissolution of the Trust could also be a taxable event.
Although Conseco will use its best efforts to list the debentures on the
New York Stock Exchange (or any other exchange or organization on which the
preferred securities are then listed) if they are distributed, we cannot assure
you that the debentures will be approved for listing or that a liquid trading
market for the debentures will develop or be maintained.
Conseco cannot predict the market prices for the debentures that may be
distributed. Accordingly, the debentures that you receive on a distribution, or
the preferred securities you hold pending such a distribution, may trade at a
discount to the price that you paid to purchase the preferred securities.
Because you may receive debentures, you should make an investment decision
with regard to the debentures in addition to the preferred securities. You
should carefully review all the information regarding the debentures contained
in the Prospectus Documents. See "Certain United States Federal Income Tax
Consequences -- Receipt of Debentures or Cash Upon Liquidation of the Trust" on
page S-28 for more information.
LIMITED VOTING RIGHTS
You will have limited voting rights. In general, unless an event of default
under the trust agreement has occurred and is continuing, only Conseco may elect
or remove any of the trustees, and in no event may holders of the preferred
securities remove the administrative trustees.
See "The Conseco Trusts" on page 5 and "Certain Terms of the Preferred
Securities -- Voting Rights" on page S-19 for more information.
CONSECO FINANCING TRUST VII
GENERAL
The Trust is a statutory business trust formed under Delaware law. The
declaration of trust for the Trust will be amended and restated in its entirety,
referred to as the declaration, substantially in a form to be filed as an
exhibit to a Current Report on Form 8-K filed by Conseco and incorporated by
reference into the registration statement of which this prospectus supplement
and the accompanying prospectus form a part. The declaration will be qualified
as an indenture under the Trust Indenture Act. Upon issuance of the preferred
securities, the purchasers thereof will own all of the preferred securities.
Conseco will directly or indirectly acquire common securities in an aggregate
liquidation amount equal to at least 3% of the total capital of the Trust and
will own all of the issued and outstanding common securities. The Trust exists
for the exclusive purposes of
- issuing the trust securities representing undivided beneficial interests
in the assets of the Trust,
- investing the gross proceeds of the trust securities in the subordinated
debentures and
- engaging in only those other activities necessary, appropriate,
convenient or incidental thereto. The Trust has a term of approximately 55
years, but may be terminated earlier as provided in the declaration.
Pursuant to the declaration, the number of trustees initially is four. Two
of the trustees will be persons who are employees or officers of or who are
affiliated with Conseco. The third trustee will be a financial institution
unaffiliated with Conseco that will serve as property trustee under the
declaration and as indenture trustee for the purposes of the Trust Indenture
Act. The fourth trustee will be a natural person who is a resident of the State
of Delaware or a legal entity which maintains its principal place of business in
the State of Delaware and meets the requirements of applicable law. State Street
Bank and Trust Company will act as the property trustee and First Union Trust
Company, National Association will
S-8
<PAGE> 9
act as the Delaware trustee, in each case until removed or replaced by the
holder of the common securities. For purposes of compliance with the provisions
of the Trust Indenture Act, State Street Bank and Trust Company will also act as
indenture trustee under the trust guarantee. See "Description of the Trust
Guarantees" on page 25.
The property trustee will hold title to the subordinated debentures for the
benefit of the Trust and the holders of the trust securities and, so long as the
subordinated debentures are held by the Trust, the property trustee will have
the power to exercise all rights, powers, and privileges of a holder of
subordinated debentures under the indenture. In addition, the property trustee
will maintain exclusive control of a segregated non-interest bearing bank
account to hold all payments made in respect of the subordinated debentures for
the benefit of the holders of the trust securities. The property trustee will
make payments of distributions and payments on liquidation, redemption and
otherwise to the holders of the trust securities out of funds from the property
account. The preferred securities guarantee trustee will hold the trust
guarantee for the benefit of the holders of the preferred securities. Conseco,
as the direct or indirect holder of all the common securities, will have the
right to appoint, remove or replace any trustee (subject to the limitations set
forth in the declaration) and to increase or decrease the number of trustees.
Conseco will pay all fees, expenses, debts and obligations (other than with
respect to the trust securities) related to the Trust and the offering of the
trust securities.
The rights of the holders of the preferred securities, including economic
rights, rights to information and voting rights are set forth in the
declaration, the Delaware Business Trust Act, as amended, the indenture and the
Trust Indenture Act. See "Certain Terms of the Preferred Securities" on page
S-17.
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in Conseco's
consolidated financial statements, with the preferred securities shown as
"Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts" under minority interest in consolidated subsidiaries. In a footnote to
Conseco's audited financial statements there will be included a statement that
the Trust is wholly-owned by Conseco and that the sole asset of the Trust is the
subordinated debentures (indicating the principal amount, interest rate and
maturity date thereof). See "Capitalization" on page S-10.
S-9
<PAGE> 10
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
Conseco at June 30, 1999: (i) as reported; and (ii) as adjusted on a pro forma
basis to reflect the issuance of preferred securities by subsidiaries of Conseco
and the use of the proceeds therefrom. This table should be read in conjunction
with Conseco's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999, and Conseco's Annual Report on Form 10-K for the year ended December 31,
1998, both of which are incorporated by reference herein. See "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------
PRO FORMA
FOR THE
AS REPORTED OFFERING
----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Notes payable and commercial paper:
Finance:
Bank credit facilities................................. $ 1,163.4
Master repurchase agreements due on various dates in
1999 and 2000......................................... 1,009.1
Credit facility collateralized by retained interests in
securitizations due 2000.............................. 500.0
10.25% senior subordinated notes due 2002.............. 193.6
Medium term notes due October 1999 to April 2003....... 238.7
Other.................................................. 3.2
Corporate:
Commercial paper....................................... 763.0
Bank credit facilities................................. 86.6
Notes payable to Leucadia National Corporation......... 400.0
6.4% notes due 2001.................................... 550.0
6.4% notes due 2003.................................... 250.0
6.5% convertible subordinated notes due 2003........... 86.0
6.8% senior notes due 2005............................. 250.0
7.6% senior notes due 2001............................. 275.0
7.875% notes due 2000.................................. 150.0
8.125% senior notes due 2003........................... 63.5
10.5% senior notes due 2004............................ 24.5
Other.................................................. 12.1
---------
Total principal amount................................. 6,018.7
Unamortized net discount.................................. (15.4)
---------
Total notes payable and commercial paper............... 6,003.3
Minority interest:
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts........................ 2,100.2
Shareholders' equity:
Common stock and additional paid-in capital, no par value;
1,000,000,000 shares authorized; 326,730,615 shares
outstanding............................................ 2,940.5
Accumulated other comprehensive loss...................... (547.3)
Retained earnings......................................... 2,963.4
---------
Total shareholders' equity............................. 5,356.6
---------
Total capitalization................................... $13,460.1
=========
</TABLE>
S-10
<PAGE> 11
RATIOS OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO FIXED CHARGES, PREFERRED STOCK DIVIDENDS
AND DISTRIBUTIONS ON COMPANY-OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS
The following table sets forth Conseco's ratios of earnings to fixed
charges, and earnings to fixed charges, preferred stock dividends and
distributions on Company-obligated mandatorily redeemable preferred securities
of subsidiary trusts for each of the five years ended December 31, 1998 and for
the six months ended June 30, 1999 and 1998. Such ratios are based on the
financial information contained in Conseco's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 and Conseco's Annual Report on Form 10-K for the
year ended December 31, 1998, both of which are incorporated by reference
herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- --------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------ ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges:
As reported................................... 5.16x 1.39x 3.30x 5.55x 4.85x 4.94x 5.80x
Excluding interest expense on debt related to
finance receivables and other
investments(a).............................. 11.92x 2.05x 6.79x 13.00x 7.80x 7.36x 9.28x
Ratio of earnings to fixed charges, preferred
stock dividends and distributions on
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts:
As reported................................... 3.73x 1.08x 2.47x 4.10x 3.74x 4.14x 4.48x
Excluding interest expense on debt related to
finance receivables and other
investments(a).............................. 5.93x 1.15x 3.68x 6.72x 5.11x 5.61x 6.14x
</TABLE>
- ---------------
(a) These ratios are included to assist the reader in analyzing the impact of
interest expense on debt related to finance receivables and other
investments (which is generally offset by interest earned on finance
receivables and other investments financed by such debt). Such ratios are
not intended to, and do not, represent the following ratios prepared in
accordance with generally accepted accounting principles: the ratio of
earnings to fixed charges; or the ratio of earnings to fixed charges,
preferred dividends and distributions on Company-obligated mandatorily
redeemable preferred securities of subsidiary trusts.
USE OF PROCEEDS
The proceeds from the sale of the preferred securities will be invested by
the Trust in subordinated debentures of Conseco issued pursuant to the Indenture
described herein. The Company intends to use the net proceeds from the
subordinated debentures to repay short-term indebtedness. The weighted average
interest rate of such indebtedness is % and such borrowings must be repaid on
.
S-11
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
Conseco's selected consolidated financial data are based on and derived
from, and should be read in conjunction with Conseco's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999, and Conseco's Annual Report on Form
10-K for the year ended December 31, 1998, and the related notes thereto, which
give retroactive effect to the Green Tree Merger on June 30, 1998, which has
been accounted for as a pooling of interests. Conseco's consolidated balance
sheets at December 31, 1998 and 1997, and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1998, 1997 and 1996 and notes thereto were audited by PricewaterhouseCoopers
LLP, independent accountants, except for the consolidated financial statements
of Green Tree as of and for the years ended December 31, 1997 and 1996 (which
financial statements are consolidated with those of Conseco and for which
separate financial data are not presented herein) which were audited by KPMG
LLP. Conseco's consolidated financial statements as of December 31, 1998 and
1997, and for each of the three years ended December 31, 1998, are included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
which is incorporated by reference herein. The selected consolidated financial
data set forth for the six months ended June 30, 1999 and 1998 are unaudited;
however, in the opinion of Conseco's management, the accompanying selected
financial data contain all adjustments, consisting only of normal recurring
items, necessary to present fairly the selected financial data for such periods.
The results of operations for the six months ended June 30, 1999, may not be
indicative of the results of operations to be expected for a full year. See
"Incorporation of Certain Documents by Reference".
The comparison of selected consolidated financial data is significantly
affected by the following business combinations accounted for as purchases:
Washington National Corporation (effective December 1, 1997); Colonial Penn Life
Insurance Company and Providential Life Insurance Company (September 30, 1997);
Pioneer Financial Services, Inc. (April 1, 1997); Capitol American Financial
Corporation (January 1, 1997); Transport Holdings Inc. (December 31, 1996);
American Travellers Corporation (December 31, 1996); FINOVA Acquisition I, Inc.
(December 1, 1996); Life Partners Group, Inc. (July 1, 1996); and American Life
Holdings, Inc. (September 29, 1994). All financial data have been restated to
give retroactive effect to the merger with Green Tree accounted for as a pooling
of interests.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- ---------- --------- --------- --------- ---------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Insurance policy income.................... $ 2,027.4 $ 1,979.9 $ 3,948.8 $ 3,410.8 $ 1,654.2 $ 1,465.0 $ 1,285.6
Gain on sale of finance receivables........ 425.8 271.3 745.0 779.0 400.6 443.3 318.6
Net investment income...................... 1,355.5 1,266.2 2,462.3 2,145.7 1,505.3 1,318.6 497.1
Net investment gains (losses).............. (21.9) 117.1 208.2 266.5 60.8 204.1 (30.5)
Total revenues............................. 4,019.4 3,802.0 7,716.0 6,846.4 3,789.8 3,561.2 2,357.6
Interest expense........................... 236.1 215.3 440.5 312.3 200.2 198.9 108.6
Total benefits and expenses................ 3,004.8 3,714.6 6,670.3 5,360.7 2,974.0 2,738.5 1,732.9
Income before income taxes, minority
interest and extraordinary charge........ 1,014.6 87.4 1,045.7 1,485.7 815.8 822.7 624.7
Extraordinary charge on extinguishment of
debt, net of tax......................... -- 30.3 42.6 6.9 26.5 2.1 4.0
Net income (loss)(a)....................... 594.6 (87.0) 467.1 866.4 452.2 470.9 330.5
Preferred stock dividends and charge
related to induced conversions of
convertible preferred stock.............. 0.6 4.2 7.8 21.9 27.4 18.4 18.6
Net income (loss) applicable to common
stock.................................... 594.0 (91.2) 459.3 844.5 424.8 452.5 311.9
</TABLE>
S-12
<PAGE> 13
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- ---------- --------- --------- --------- ---------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA(b)
Net income (loss), basic................... $ 1.84 $ (.29) $ 1.47 $ 2.72 $ 1.85 $ 2.19 $ 1.39
Net income (loss), diluted(a).............. 1.80 (.29) 1.40 2.52 1.69 2.03 1.32
Dividends declared per common share........ .28 .25 .530 .313 .083 .046 .125
Book value per common share outstanding.... 16.39 15.56 16.37 16.45 13.47 8.52 5.58
Shares outstanding at period-end........... 326.7 312.4 315.8 310.0 293.4 205.2 212.7
Weighted average shares outstanding for
diluted earnings......................... 331.2 309.6 332.7 338.7 267.7 232.3 250.5
BALANCE SHEET DATA -- PERIOD END
Total assets............................... $45,532.5 $42,469.7 $ 43,599.9 $40,679.8 $28,724.0 $19,517.7 $12,302.3
Notes payable and commercial paper:
Corporate................................ 2,899.6 2,952.1 2,932.2 2,354.9 1,094.9 871.4 191.8
Finance.................................. 3,103.7 2,728.8 2,389.3 1,863.0 762.5 383.6 309.3
Notes payable of affiliates, not direct
obligations of Conseco................. -- -- -- -- -- 584.7 611.1
Total liabilities.......................... 38,075.7 36,116.2 36,229.4 34,082.0 23,810.2 17,082.7 10,509.2
Minority interests in consolidated
subsidiaries:
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts................................. 2,100.2 1,388.8 2,096.9 1,383.9 600.0 -- --
Preferred stock.......................... -- -- -- -- 97.0 110.7 130.1
Common stock............................. -- -- -- -- -- 292.6 191.6
Shareholders' equity....................... 5,356.6 4,964.7 5,273.6 5,213.9 4,216.8 2,031.7 1,471.4
OTHER FINANCIAL DATA(b)(c)
Premiums and deposits collected(d)......... $ 3,859.3 $ 3,045.8 $ 6,081.3 $ 5,075.6 $ 3,280.2 $ 3,106.5 $ 1,879.1
Operating earnings(e)...................... 619.3 455.7 1,046.3 991.8 467.5 381.8 331.8
Operating earnings per diluted common
share(e)................................. 1.87 1.46 3.15 2.93 1.75 1.64 1.33
Managed finance receivables................ 42,195.0 32,302.2 37,199.8 27,957.1 20,072.7 13,887.6 9,821.1
Total managed assets (at fair value)(f).... 93,841.2 79,067.3 87,247.4 70,259.8 59,084.8 42,711.4 32,806.9
Shareholders' equity excluding unrealized
appreciation (depreciation) of fixed
maturity securities(g)................... 5,855.0 4,766.7 5,285.5 5,036.7 4,177.0 1,919.1 1,609.1
Book value per common share outstanding,
excluding unrealized appreciation
(depreciation) of fixed maturity
securities(g)............................ 17.92 14.93 16.40 15.88 13.33 7.97 6.23
Finance originations....................... $12,184.1 $ 9,793.7 $ 21,422.0 $15,647.8 $10,544.3 $ 6,891.0 $ 4,065.6
Delinquencies greater than 60 days as a
percentage of managed finance
receivables.............................. 1.09% 1.03% 1.19% 1.08% 1.08% .93% .70%
Net credit losses as a percentage of
average managed finance receivables...... 1.11% 1.09% 1.03% 1.05% .74% .56% .63%
</TABLE>
- ---------------
(a) Net income of $467.1 million for the year ended December 31, 1998, or $1.40
per diluted share, included nonrecurring and impairment charges totaling
$503.8 million (net of taxes), or $1.52 per share. Such amounts were
comprised of (i) $148.0 million of merger-related costs; (ii) $549.4
million to write down the carrying value of Green Tree's interest-only
securities and servicing rights; and (iii) income taxes of $193.6 million.
The net loss of $87.0 million for the six months ended June 30, 1998, or 29
cents per diluted share also included the aforementioned nonrecurring and
impairment charges totaling $503.8 million (net of tax), or $1.63 per
share.
(b) All share and per-share amounts have been restated to reflect the
two-for-one stock splits paid on February 11, 1997 and April 1, 1996.
(c) Amounts under this heading are included to assist the reader in analyzing
Conseco's financial position and results of operations. Such amounts are
not intended to, and do not, represent insurance policy income, net income,
net income per share, shareholders' equity or book value per share prepared
in accordance with generally accepted accounting principles.
(d) Includes premiums received from universal life and products without
mortality or morbidity risk. Such premiums are not reported as revenues
under generally accepted accounting principles and were $1,316.4 million and
$1,292.6 million in the six months ended June 30, 1999 and 1998,
respectively, and $2,585.7 million, $2,099.4 million, $1,881.3 million,
$1,757.5 million, and $634.6 million in the years ended December 31, 1998,
1997, 1996, 1995 and 1994, respectively. Also includes deposits in mutual
funds and certificates of deposits totaling $585.0 million and $35.4 million
in the six months ended June 30, 1999 and 1998, respectively, and $117.1
million and $19.9 million in the years ended December 31, 1998 and 1997,
respectively.
(e) Represents income before extraordinary charge, net investment gains
(losses) of our life insurance and corporate segments (less that portion of
amortization of cost of policies purchased and cost of policies produced
and income taxes relating to such gains (losses)), and nonrecurring and
impairment charges (net of income taxes).
(f) Represents: (i) our assets, excluding finance receivables, interest-only
securities and servicing assets, of $40.0 billion and $37.8 billion at June
30, 1999 and 1998, respectively, and of $38.9 billion, $37.2 billion, $26.4
billion,
S-13
<PAGE> 14
$17.9 billion, and $11.3 billion at December 31, 1998, 1997, 1996, 1995 and
1994, respectively; (ii) the total fixed and revolving credit receivables
that Green Tree manages, including receivables on its balance sheet and
receivables applicable to the holders of asset-backed securities sold by
Green Tree of $42.2 billion and $32.3 billion at June 30, 1999 and 1998,
respectively, and of $37.2 billion, $28.0 billion, $20.1 billion, $13.9
billion, and $9.8 billion at December 31, 1998, 1997, 1996, 1995 and 1994,
respectively; and (iii) the total market value of the investment portfolios
managed by Conseco Capital Management, Inc., excluding assets of Conseco's
subsidiaries, of $11.7 billion and $9.0 billion at June 30, 1999 and 1998,
respectively, and of $11.2 billion, $5.1 billion, $12.6 billion, $10.9
billion and $11.7 billion at December 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
(g) Excludes the effects of reporting fixed maturities at fair value and
recording the unrealized gain or loss on such securities as a component of
shareholders' equity, net of tax and other adjustments.
S-14
<PAGE> 15
CONSECO
We are a financial services holding company. We conduct and manage our
business through two operating segments, reflecting our major lines of business:
(1) insurance and fee-based operations and (2) finance operations. Our insurance
subsidiaries develop, market and administer supplemental health insurance,
annuity, individual life insurance, individual and group major medical insurance
and other insurance products. Our finance subsidiaries make, purchase, sell and
service consumer and commercial finance loans throughout the United States.
Since 1982, we have acquired 19 insurance groups. In 1998, we acquired Green
Tree Financial Corporation, which comprises our finance operations. Our
operating strategy is to grow our businesses by focusing our resources on
developing and expanding profitable products and strong distribution channels,
by actively managing assets to seek to achieve superior investment returns and
by controlling expenses.
Our principal executive offices are located at 11825 N. Pennsylvania
Street, Carmel, Indiana 46032. Our telephone number is (317) 817-6100.
INSURANCE AND FEE-BASED OPERATIONS
Our insurance subsidiaries develop, market and administer supplemental
health insurance, annuity, individual life insurance, individual and group major
medical insurance and other insurance products.
Supplemental health insurance. These products include Medicare supplement,
long-term care and specified disease insurance. Medicare is a federal health
insurance program for disabled persons and senior citizens (age 65 and older).
Medicare supplement policies provide coverage for many of the medical expenses
which the Medicare program does not cover, such as deductibles and coinsurance
costs (in which the insured and Medicare share the costs of medical expenses)
and specified losses which exceed the federal program's maximum benefits.
Long-term care products provide coverage, within prescribed limits, for nursing
home, home health care, or a combination of both nursing home and home health
care expenses. These products also include specified disease products such as
cancer and heart/stroke insurance. These policies generally provide fixed or
limited benefits. Payments under cancer insurance policies are generally made
directly to, or at the discretion of, the policyholder following diagnosis of,
or treatment for, a covered type of cancer. Heart/stroke policies provide for
payments directly to the policyholder for treatment of a covered heart disease,
heart attack or stroke.
Annuities. These products include fixed annuities, equity-indexed annuities
and variable annuities sold through both career agents and professional
independent producers. A fixed annuity is a savings vehicle in which the
policyholder, or annuitant, makes one or more premium payments to the insurance
company; the insurer guarantees the principal and accrues a stated rate of
interest (which may vary over time) or, in the case of an equity-indexed
annuity, a stated rate plus potentially additional amounts determined by
reference to an equity index. Variable annuities, sold on a single- or
flexible-premium basis, differ from fixed annuities in that the original
principal value may fluctuate, depending on the performance of assets allocated
pursuant to various investment options chosen by the contract owner.
Life insurance. These products include traditional life, universal life and
other life insurance products. These products are currently sold through career
agents, professional independent producers and direct response marketing.
Interest-sensitive life products include universal life products that provide
whole life insurance with adjustable rates of return related to current interest
rates. Traditional life policies include whole life and term life products.
Under whole life policies, the policyholder generally pays a level premium over
the policyholders' expected lifetime. These policies, which continue to be
marketed by Conseco on a limited basis, combine insurance protection with a
savings component that increases in amount gradually over the life of the
policy. Term life products offer pure insurance protection for a specified
period of time -- typically one, five, 10 or 20 years.
Individual and group major medical insurance and other. These products
include individual and group major medical health insurance products. The
profitability of this business depends largely on the overall persistency of the
business in force, claim experience and expense management.
S-15
<PAGE> 16
FINANCE OPERATIONS
Through Green Tree, our finance segment originates, purchases, sells and
services consumer and commercial loans throughout the United States.
This segment provides financing for manufactured housing, home equity, home
improvements, consumer products and equipment and provides consumer and
commercial revolving credit. Green Tree's insurance agencies market physical
damage and term mortgage life insurance and other credit protection relating to
the customers' contracts we service. Green Tree is the largest servicer of
manufactured housing contracts in the United States.
To date, we have pooled and securitized substantially all of the contracts
we have originated. Such pools are structured into asset-backed securities which
are sold in the public securities markets. We continue to service the loans
after the sale. The availability and cost of capital in securitization
transactions can materially affect the results of operations of our finance
segment. The Company is actively considering a change to finance our receivables
so they remain on the balance sheet and record interest spreads over the life of
the loans rather than as gain on sale at the time of securitization.
See "Incorporation of Certain Documents by Reference" on page 4 for
additional information concerning Conseco.
S-16
<PAGE> 17
DESCRIPTION OF SECURITIES
The Prospectus Documents contain the material terms and conditions for
these securities but the summaries in this prospectus supplement are not meant
to be a complete description of the preferred securities and the debentures. For
more information, refer to the trust agreement, the indenture and the preferred
securities guarantee. Forms of these documents are filed as exhibits to the
registration statement of which the prospectus is a part. All terms used in the
Prospectus Documents and not defined in the Prospectus Documents have the
meanings given to them in the trust agreement, the indenture and the preferred
securities guarantee.
CERTAIN TERMS OF THE PREFERRED SECURITIES
DISTRIBUTIONS
The preferred securities represent undivided beneficial interests in the
assets of the Trust. The only assets of the Trust will be the debentures.
Distributions on the preferred securities are cumulative and will accumulate
from August , 1999 at the annual rate of % of the $25 liquidation amount
of each preferred security. Distributions will be payable quarterly in arrears
on March 31, June 30, September 30 and December 31 of each year, beginning
September 30, 1999. Distributions not paid when due will themselves accumulate
distributions at the annual rate of % (to the extent permitted by law).
When we refer to any payment of distributions, any such additional distributions
are included. The amount of distributions payable for any full quarterly period
will be computed on the basis of a 360-day year of twelve 30-day months. The
amount of distributions payable for any partial period will be computed on the
basis of the actual number of days elapsed in such period.
If distributions are payable on a date that is not a business day (as
defined below), payment will be made on the next business day (and without any
interest or other payment in respect of such delay). However, if the next
business day is in the next calendar year, payment of distributions will be made
on the preceding business day. A "business day" means each day except Saturday,
Sunday and any day on which banking institutions in The City of New York or
Wilmington, Delaware are authorized or required by law, regulation or executive
order to close.
DEFERRAL OF DISTRIBUTIONS
So long as no event of default has occurred and is continuing under the
debentures, Conseco may, on one or more occasions, defer interest payments on
the debentures to the Trust for up to 20 consecutive quarterly periods. A
deferral of interest payments cannot extend beyond the stated maturity date of
the debentures on , 2029 unless the maturity date is changed at the
option of Conseco. If Conseco defers interest payments on the debentures, the
Trust will also defer quarterly distributions on the preferred securities to
you. During a deferral period, the amount of distributions due to you would
continue to accumulate and such deferred distributions will themselves
accumulate distributions at the rate stated above (to the extent permitted by
law).
Once Conseco makes all deferred interest payments on the debentures, with
accrued interest, it may again defer interest payments on the debentures if no
event of default under the debentures has then occurred and is continuing.
Conseco has no current intention of deferring interest payments on the
debentures. If Conseco defers interest payments on the debentures, Conseco will
be subject to certain restrictions relating to the payment of dividends on or
redemption of its capital stock and payments on its debt securities that rank
equal with or junior to the debentures. See "Certain Terms of the
Debentures -- Option to Extend Interest Payment Period" on page S-24.
PAYMENT OF DISTRIBUTIONS
Distributions on the preferred securities will be payable to holders named
on the securities register of the Trust on the relevant record date. As long as
the preferred securities are represented by a global security, the record date
for the payment of distributions will be one business day before the relevant
payment date. If the preferred securities are ever issued in certificated form,
the record date for the payment of distributions will be the 15th day of
S-17
<PAGE> 18
the last month of each quarterly distribution period, even if that day is not a
business day.
As long as the preferred securities are represented by a global security,
payments on the preferred securities will be made in immediately available funds
to DTC, the depositary for the preferred securities. If the preferred securities
are ever issued in certificated form, payment of distributions on the preferred
securities will be made by check mailed to the holders thereof on the relevant
record date.
REDEMPTION
Conseco will redeem the debentures when the debentures are paid at maturity
on , 2029, unless the maturity date is changed at the option of
Conseco, and may, in whole or, on or after , 2004, in part, before
their maturity:
- on one or more occasions any time on or after , 2004; and
- before , 2004, if certain changes in tax or investment
company law occur or will occur within 90 days (each of which is a
"Special Event" more fully described below).
When Conseco repays some or all of the debentures, either at maturity on
, 2029, unless the maturity is changed at the option of Conseco, or
upon early redemption, the Trust will use the cash it receives upon the
redemption of the debentures to redeem a like liquidation amount of the
preferred securities and, unless an event of default under the trust agreement
has occurred and is continuing, the common securities. The preferred securities
and common securities (if applicable) will be redeemed at a price equal to their
liquidation amount of $25 per security plus accumulated distributions, if any.
The redemption price for the debentures is 100% of their principal amount plus
accrued and unpaid interest to the date of redemption. See "Certain Terms of the
Debentures -- Redemption" on page S-24.
If less than all the preferred securities and common securities are to be
redeemed in situations where common securities may be redeemed consistent with
the provisions described under "-- Subordination of Common Securities" on page
S-20, then the aggregate liquidation amount of preferred securities and common
securities to be redeemed will be allocated at least 3% to the common securities
holder and approximately 97% to the preferred securities holders.
SPECIAL EVENT REDEMPTION
Upon the occurrence of a Tax Event or an Investment Company Event, as
defined below (each a "Special Event"), before , 2004, Conseco may
redeem the debentures, in whole but not in part, within 90 days following the
occurrence of the Special Event.
"Tax Event" means that the Trust has received an opinion of counsel
experienced in such matters to the effect that, as a result of any:
- amendment to, or change (including any announced proposed change) in, the
laws or regulations of the United States or any political subdivision or
taxing authority affecting taxation; or
- official or administrative pronouncement or action, or judicial decision,
interpreting or applying such laws or regulations
where such change or amendment becomes effective, or such pronouncement, action
or decision is announced or occurs, on or after the date of this prospectus
supplement, there is more than an insubstantial risk that:
- the Trust is or, within 90 days of the date of such opinion, would be
subject to United States federal income tax with respect to interest
accrued or received on the debentures;
- interest payable by Conseco on the debentures is not or, within 90 days
of the date of such opinion, would not be deductible by Conseco in whole
or in part for United States federal income tax purposes; or
- the Trust is or, within 90 days of the date of such opinion, would be
subject to more than a minimal amount of other taxes, duties, assessments
or other governmental charges.
"Investment Company Event" means that the Trust has received an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative
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body, court, governmental agency or regulatory authority, there is more than an
insubstantial risk that the Trust is or will be considered an "investment
company" under the Investment Company Act of 1940 that is required to be
registered under this law, which change becomes effective on or after the date
of this prospectus supplement.
REDEMPTION PROCEDURES
The Trust will give you at least 30 days, but not more than 60 days,
written notice before any redemption of preferred securities. To the extent
funds are available for payment, the Trust will irrevocably deposit with DTC
sufficient funds to pay the redemption amount for the preferred securities being
redeemed. The Trust will also give DTC irrevocable instructions and authority to
pay the redemption amount in immediately available funds to the beneficial
owners of the global securities representing the preferred securities.
Distributions to be paid on or before the redemption date for any preferred
securities called for redemption will be payable to the holders on the record
dates for the related dates of distribution.
Once notice of redemption is given and funds are irrevocably deposited,
distributions on the preferred securities will cease to accumulate and all
rights of the holders of the preferred securities called for redemption will
cease, except for the right to receive the redemption amount (but without
interest on such redemption amount).
If any redemption date is not a business day, then the redemption amount
will be payable on the next business day (and without any interest or other
payment in respect of any such delay).
If payment of the redemption amount for any preferred securities called for
redemption is improperly withheld or refused and not paid either by the Trust or
by Conseco, distributions on the preferred securities will continue to
accumulate at the applicable rate from the original redemption date scheduled to
the actual date of payment. In this case, the actual payment date will be
considered the redemption date for purposes of calculating the redemption
amount.
In compliance with applicable law (including the United States federal
securities laws), Conseco or its affiliates may, at any time, purchase
outstanding preferred securities by tender, in the open market, or by private
agreement.
EVENTS OF DEFAULT
An event of default under the indenture (an "indenture event of default")
constitutes an event of default under the declaration with respect to the
preferred securities (a "declaration event of default"), provided that pursuant
to the declaration, the holder of the common securities will be deemed to have
waived any declaration event of default with respect to the common securities
until all declaration events of defaults with respect to the preferred
securities have been cured, waived or otherwise eliminated. Until such
declaration event of default with respect to the preferred securities has been
cured, waived or otherwise eliminated, the property trustee will be deemed to be
acting solely on behalf of the holders of the preferred securities and only the
holders of the preferred securities will have the right to direct the property
trustee with respect to certain matters under the declaration, and therefore the
indenture.
Upon the occurrence of a declaration event of default, the indenture
trustee or the property trustee will have the right under the indenture to
declare the principal of and interest on the debentures to be immediately due
and payable.
VOTING RIGHTS
Subject to the requirement of the property trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the preferred
securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the property trustee, or direct the
exercise of any trust or power conferred upon the property trustee under the
declaration, including the right to direct the property trustee, as holder of
the debentures, to
- exercise the remedies available under the indenture with respect to the
debentures,
- waive any past indenture event of default that is waivable under the
indenture, or
- exercise any right to rescind or annul a declaration that the principal
of all the debentures shall be due and payable, or consent to any
amendment, modification or termination of the indenture or the
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<PAGE> 20
debentures, where such consent should be required;
provided, however, that, where a consent or action under the indenture would
require the consent or act of the holders of greater than a majority in
principal amount of debentures affected thereby (a "super-majority"), the
property trustee may only give such consent or take such action at the written
direction of the holders of at least the proportion in liquidation amount of the
preferred securities which the relevant super-majority represents of the
aggregate principal amount of the debentures outstanding. The property trustee
shall notify all holders of the preferred securities of any notice of default
received from the indenture trustee with respect to the debentures. Except with
respect to directing the time, method and place of conducting a proceeding for a
remedy, the property trustee shall not take any of the actions described in the
bullet points above unless the property trustee has obtained an opinion of tax
counsel to the effect that, as a result of such action, the Trust will not be
classified as other than a grantor trust for United States federal income tax
purposes.
In the event the consent of the property trustee, as the holder of the
debentures, is required under the indenture with respect to any amendment,
modification or termination of the indenture or the debentures, the property
trustee shall request the direction of the holders of the preferred securities
with respect to such amendment, modification or termination and shall vote with
respect to such amendment, modification or termination as directed by a majority
in liquidation amount of the preferred securities voting together as a single
class; provided, however, that where a consent under the indenture would require
the consent of a super-majority, the property trustee may only give such consent
at the direction of the holders of at least the proportion in liquidation amount
of the preferred securities which the relevant super-majority represents of the
aggregate principal amount of the debentures outstanding. The property trustee
shall not take any such action in accordance with the directions of the holders
of the preferred securities unless the property trustee has obtained an opinion
of tax counsel to the effect that the Trust will not be classified as other than
a grantor trust for United States federal income tax purposes on account of such
action.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption and liquidation amount of,
the preferred securities and the common securities will be made pro rata based
on the aggregate liquidation amounts of the preferred securities and the common
securities. However, if an event of default under the trust agreement has
occurred and is continuing, no payments may be made on the common securities
unless all unpaid amounts on the preferred securities have been provided for or
paid in full.
If an event of default under the trust agreement has occurred and is
continuing, the common securities holder will be deemed to have waived any right
to take any action with respect to the event of default until the event of
default has been cured, waived or eliminated. Until any such event of default
has been cured, waived or eliminated, the property trustee will act solely on
behalf of the holders of the preferred securities, and such holders will have
the right to direct the property trustee to act on their behalf.
BOOK-ENTRY-ONLY ISSUANCE -- DTC
The preferred securities will be represented by one or more global
securities that will be deposited with and registered in the name of DTC or its
nominee. This means that the Trust will not issue certificates to you for the
preferred securities. Each global security will be issued to DTC which will keep
a computerized record of its participants (for example, a broker) whose clients
have purchased the preferred securities. Each participant will then keep a
record of its clients. Unless a global security is exchanged in whole or in part
for a certificated security, a global security may not be transferred. However,
DTC, its nominees and their successors may transfer a global security as a whole
to one another.
Beneficial interests in a global security will be shown on, and transfers
of the global security will be made only through, records maintained by DTC and
its participants. DTC holds securities that its participants ("direct
participants") deposit with DTC. DTC also records the settlement among direct
participants of securities transactions, such as transfers and pledges, in
deposited securities through computerized records for direct participant's
accounts. This eliminates the need to exchange certificates. Direct participants
include securities brokers and dealers, banks, trust
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<PAGE> 21
companies, clearing corporations and certain other organizations.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
direct participant. The rules that apply to DTC and its participants are on file
with the Securities and Exchange Commission.
DTC is owned by a number of its direct participants and by the New York
Stock Exchange, the American Stock Exchange and the National Association of
Securities Dealers.
DTC has advised Conseco and the Trust that DTC is a limited-purpose trust
company organized under New York Banking Law, a "banking organization" within
the meaning of the New York Banking Law, a member or the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended.
Purchases under the DTC System
When you purchase preferred securities through the DTC system, the
purchases must be made by or through a direct participant, who will receive
credit for the preferred securities on DTC's records. Because you actually own
the preferred security, you are the beneficial owner. Your ownership interest
will be recorded only on the direct (or indirect) participants' records. DTC has
no knowledge of your individual ownership of the preferred securities. DTC's
records show only the identity of the direct participants and the amount of the
preferred securities held by or through them. You will not receive a written
confirmation of your purchase or sale or any periodic account statement directly
from DTC. You will receive these from your direct (or indirect) participant. As
a result, the direct (or indirect) participants are responsible for keeping
accurate account of the holdings of their customers, like you.
Payments under the DTC System
The property trustee will wire payments on the preferred securities to
DTC's nominee. Conseco, the Trust and the property trustee will treat DTC's
nominee as the owner and holder of each global security representing preferred
securities for all purposes. Accordingly, Conseco, the Trust and the property
trustee will have no direct responsibility or liability to pay amounts due on
the global security to you or any other beneficial owners in the global
security.
Any redemption notices will be sent by Conseco and the Trust directly to
DTC, who will in turn inform the direct participants, who will then contact you
as a beneficial owner. If less than all of the preferred securities are being
redeemed, DTC's practice is to choose by lot the amount of the interest of each
direct participant to be redeemed. The direct participant will then use an
appropriate method to allocate the redemption among its beneficial owners, like
you.
It is DTC's current practice, upon receipt of any payment of distributions
or liquidation or redemption amount, to credit direct participants' accounts on
the payment date based on their holdings of beneficial interests in the global
securities as shown on DTC's records. In addition, it is DTC's current practice
to assign any consenting or voting rights to direct participants whose accounts
are credited with preferred securities on a record date, by using an omnibus
proxy. Payments by participants to owners of beneficial interests in the global
securities, and voting by participants, will be based on the customary practices
between the participants and owners of beneficial interests, as is the case with
securities held for the account of customers registered in "street name."
However, payments will be the responsibility of the participants and not of DTC,
the property trustee, Conseco or the Trust.
Year 2000 Issues
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each
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of which is complete. Additionally, DTC's plan includes a testing phase, which
is expected to be completed within appropriate time frames.
DTC's ability to perform properly its services is also dependent upon other
parties, including, but not limited to, issuers and their agents, as well as
DTC's direct and indirect participants and third party vendors from whom DTC
licenses software and hardware, and third party vendors on whom DTC relies for
information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (i) impress upon them the importance
of such services being Year 2000 compliant; and (ii) determine the extent of
their efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
EXCHANGE OF GLOBAL SECURITIES
Preferred securities represented by a global security will be exchangeable
for certificated securities with the same terms in authorized denominations only
if:
- DTC is unwilling or unable to continue as depositary or if DTC ceases to
be a clearing agency registered under the Securities Exchange Act of 1934
and a successor depositary is not appointed by the Trust within 90 days;
- Conseco decides to discontinue use of the system of book-entry transfer
through DTC (or any successor depositary); or
- a default or event of default under the trust agreement occurs and is
continuing.
If the book-entry-only system is discontinued, the property trustee will
keep the registration books for the preferred securities at its corporate office
and follow the practices and procedures discussed below.
CERTIFICATED SECURITIES -- REGISTRATION AND TRANSFER
If the Trust issues certificated securities, they will be registered in the
name of the securityholder. The preferred securities may be transferred or
exchanged, based on administrative procedures in the trust agreement, without
the payment of any service charge (other than any tax or other governmental
charge) by contacting the property trustee, State Street Bank and Trust Company,
225 Asylum Street, Hartford, CT 06103, attn: Corporate Trust Dept.
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<PAGE> 23
CERTAIN TERMS OF THE DEBENTURES
The debentures will be issued as a series pursuant to a supplemental
indenture as provided for in the indenture.
SUBORDINATION
The debentures are unsecured and are junior in right of payment to all of
Conseco's Senior Indebtedness (as defined below). This means that no payment on
the debentures may be made if:
- any Senior Indebtedness is not paid when due and such default has not
been cured or waived or ceased to exist; or
- if the maturity of any Senior Indebtedness has been accelerated because
of a default and such acceleration has not been rescinded.
On any distribution of assets of Conseco to creditors upon any dissolution,
winding-up or liquidation, whether voluntary or involuntary or in bankruptcy,
insolvency, receivership, reorganization or other proceedings, all principal,
premium, if any, and interest due or to become due on all Senior Indebtedness
must be paid in full before the holders of the debentures are entitled to
receive or retain any payment. Upon payment in full of Senior Indebtedness, the
holders of the debentures will assume rights similar to the holders of Senior
Indebtedness to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the debentures are paid in full.
The debentures will rank equally with all other subordinated debt
securities initially issued to the other trusts referred to in the accompanying
prospectus or to other trusts, partnerships or other entities affiliated with
Conseco in connection with an issuance of securities similar to the preferred
securities.
In this prospectus supplement, Senior Indebtedness means the principal of,
premium, if any, and interest on:
- all indebtedness of Conseco outstanding, created, incurred or assumed,
which is for money borrowed, or evidenced by a note or similar instrument
given in connection with the acquisition of any business, properties or
assets, including securities;
- any indebtedness of others of the kinds described in the preceding bullet
point for the payment of which Conseco is responsible or liable as
guarantor or otherwise; and
- amendments, renewals, extensions and refundings of any indebtedness
referred to in the preceding bullet points;
unless in any instrument or instruments evidencing or securing the indebtedness
referred to in the preceding bullet points or pursuant to which that
indebtedness is outstanding, or in any such amendment, renewal, extension or
refunding, it is expressly provided that the indebtedness is not superior in
right of payment to the debentures.
Senior Indebtedness does not include:
- any indebtedness of Conseco to any of its subsidiaries;
- any indebtedness that, by its terms, is junior to or equal with the
debentures;
- trade accounts payable arising in the ordinary course of business; and
- any series of subordinated debt securities initially issued to the other
Conseco trusts referred to in the accompanying prospectus or to other
trusts, partnerships or other entities affiliated with Conseco in
connection with an issuance of securities similar to the preferred
securities.
Neither the debentures nor the preferred securities guarantee will limit
the ability of Conseco and its subsidiaries to incur additional indebtedness,
including indebtedness that ranks senior in priority of payment to the
debentures and the preferred securities guarantee. At June 30, 1999, on a pro
forma basis, as if on that date Conseco and the Trust had issued and sold the
preferred securities and the debentures and applied the estimated net proceeds
thereof, approximately $ million, as described in this prospectus
supplement, the total amount of Conseco's Senior Indebtedness would have been
approximately $39.8 billion. See "Capitalization" on page S-10 and "Use of
Proceeds" on page S-11.
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<PAGE> 24
INTEREST RATE AND MATURITY
The debentures will mature on , 2029, unless the maturity date is
changed at the option of Conseco and will bear interest, accruing from
, 1999, at the annual rate of % of their principal amount, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, beginning , 1999. Interest payments not paid when due will
themselves accrue additional interest at the annual rate of % (to the extent
permitted by law). When we refer to any payment of interest, interest includes
such additional interest and any Additional Sums, as defined below. The interest
payment provisions for the debentures correspond to the distribution provisions
of the preferred securities. The debentures do not have a sinking fund. This
means that Conseco is not required to make any principal payments prior to
maturity.
The debentures mature on , 2029, which date may be extended at any
time at the election of Conseco for one or more periods for up to 20 consecutive
quarters, but in no event to a date later than the earlier of , 2048 or
the interest deduction date, provided that certain financial conditions are met.
The maturity date may be shortened to a date not earlier than 2004 if Conseco
chooses to liquidate the Trust and distribute the debentures, subject to the
receipt of any consents required by the terms of any indebtedness of Conseco
which may be outstanding from time to time. The interest deduction date means
the date prior to the maturity date of the debentures which falls six months
prior to the latest date upon which payments of interest on the debentures will
become non-deductible under federal law.
ADDITIONAL SUMS
If the Trust is required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding taxes) imposed
by the United States, or any other taxing authority (collectively, "Taxes"),
then Conseco will be required to pay additional amounts ("Additional Sums") on
the debentures so that after the Trust pays any Taxes, the Trust will be in the
same position it would have been if it did not have to pay such Taxes.
REDEMPTION
Conseco may redeem the debentures in whole or, on or after , 2004,
in part, before their maturity:
- on one or more occasions any time on or after , 2004; or
- before , 2004, upon the occurrence of a Special Event.
If Conseco decides to redeem debentures in these circumstances, the
redemption price of each debenture redeemed will be equal to 100% of the
principal amount of such debenture plus accrued and unpaid interest on such
debenture to the date of redemption.
DISTRIBUTION OF DEBENTURES
If the property trustee distributes the debentures to the preferred
securities holders and common securities holder upon the dissolution and
liquidation of the Trust, the debentures will be issued in denominations of $25
principal amount and integral multiples thereof. Conseco anticipates that the
debentures would be distributed in the form of one or more global securities and
DTC, or any successor depositary for the preferred securities, would act as
depositary for the debentures. The depositary arrangements for the debentures
would be substantially similar to those in effect for the preferred securities.
For a description of DTC and the terms of the depositary arrangements
relating to payments, transfers, voting rights, redemption, other notices and
other matters, see "Certain Terms of the Preferred Securities -- Book-Entry-Only
Issuance -- DTC" on page S-20.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Conseco may, on one or more occasions, defer interest payments on the
debentures for up to 20 consecutive quarterly periods, if no event of default
has occurred and is continuing with respect to the debentures. A deferral of
interest payments cannot extend beyond the stated maturity date of the
debentures. No interest will be due and payable on the debentures until the end
of the deferral period unless the debentures are redeemed prior to such time.
Conseco may pay at any time all or any portion of the interest accrued to
that point during a
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deferral period. At the end of the deferral period or at a redemption or
maturity date, Conseco will be obligated to pay all accrued and unpaid interest.
Once Conseco makes all interest payments on the debentures, with accrued
interest, it may again defer interest payments on the debentures if no event of
default under the debentures has then occurred and is continuing.
During any deferral period, Conseco will not be permitted to:
- declare or pay any dividend on, make any distributions with respect to,
or redeem, purchase, acquire or make a liquidation payment on, any shares
of its capital stock, other than certain situations including stock
dividends paid by Conseco where the dividend stock is the same stock as
that on which the dividend is paid;
- make any payment of principal of, or premium, if any, or interest on, or
repay, repurchase or redeem, any debt securities issued by Conseco which
rank equal with or junior to the debentures; or
- make any guarantee payments with respect to any guarantee by Conseco of
the debt securities of any subsidiary of Conseco if such guarantee ranks
equal with or junior to the debentures.
Because the debentures to be issued to the Trust will rank equal with all
other series of subordinated debt securities of Conseco initially issued to the
other trusts referred to in the accompanying prospectus or to certain other
trusts, partnerships or other entities affiliated with Conseco, during an
interest deferral period, Conseco will not be permitted to make payments on such
other series of subordinated debt securities. Likewise, if Conseco defers
interest payments on any other of such series of subordinated debt securities,
it is not expected that Conseco will be permitted to make payments on the
debentures.
The restrictions described in the bullet points above will also apply if
there occurs and is continuing a default or event of default under the indenture
or if Conseco defaults on its obligations under the preferred securities
guarantee.
Conseco will give the Trust, the administrative trustees and the property
trustee notice if it decides to defer interest payments on the debentures.
Conseco will give that notice at least one business days before the earlier of:
- the next date distributions on the preferred securities are payable; or
- the date the Trust is required to give notice to the New York Stock
Exchange (or any other applicable self-regulatory organization) or to
holders of the preferred securities of the record date or the date
distributions are payable.
The administrative trustees will give notice to the holders of preferred
securities if Conseco decides to defer interest payments on the debentures.
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<PAGE> 26
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In this section, we summarize certain of the material United States federal
income tax consequences of purchasing, holding and selling the preferred
securities. Except where we state otherwise, this summary deals only with
preferred securities held as capital assets (as defined in the Internal Revenue
Code of 1986) by a US Holder (as defined below) who purchases the preferred
securities at their original offering price when the Trust originally issues
them.
We do not address all of the tax consequences that may be relevant to a US
Holder. We also do not address, except as stated below, any of the tax
consequences to holders that are Non-US Holders (as defined below) or to holders
that may be subject to special tax treatment including banks, thrift
institutions, real estate investment trusts, personal holding companies,
tax-exempt organizations, regulated investment companies, insurance companies,
and brokers and dealers in securities or currencies. Further, we do not address:
- the United States federal income tax consequences to shareholders in, or
partners or beneficiaries of, an entity that is a holder of the preferred
securities;
- the United States federal estate and gift or alternative minimum tax
consequences of the purchase, ownership or sale of the preferred
securities;
- persons who hold the preferred securities in a "straddle" or as part of a
"hedging," "conversion" or "constructive sale" transaction or whose
"functional currency" is not the United States dollar; or
- any state, local or foreign tax consequences of the purchase, ownership
and sale of preferred securities.
Accordingly, you should consult your tax advisor regarding the tax
consequences of purchasing, owning and selling the preferred securities in light
of your circumstances.
A "US Holder" is a preferred securities holder who or which is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States, any state thereof or the District of Columbia (unless,
in the case of a partnership, Treasury regulations provide otherwise);
- an estate if its income is subject to United States federal income
taxation regardless of its source; or
- a trust if (1) a United States court can exercise primary supervision
over its administration and (2) one or more United States persons have
the authority to control all of its substantial decisions.
A "Non-US Holder" is a preferred securities holder other than a US Holder.
This summary is based on the Internal Revenue Code, Treasury regulations
(proposed and final) issued under the Internal Revenue Code, and administrative
and judicial interpretations thereof, all as they currently exist as of the date
of this prospectus supplement. These income tax laws and regulations, however,
may change at any time, possibly on a retroactive basis. Any such changes may
affect this summary.
CLASSIFICATION OF THE SUBORDINATED DEBT SECURITIES
In connection with the issuance of the debentures, Leagre Chandler &
Millard LLP, special tax counsel to Conseco and the Trust ("Tax Counsel"), will
render a legal opinion generally to the effect that under the current law and
assuming full compliance with the terms of the indenture and certain other
documents, and based on certain facts and assumptions described in the opinion,
the debentures that will be held by the Trust will be classified, for United
States federal income tax purposes, as indebtedness of Conseco.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the preferred securities, Tax Counsel
will render a legal opinion generally to the effect that, under the
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current law and assuming full compliance with the terms of the trust agreement,
the indenture, and certain other documents, and based on certain facts and
assumptions described in the opinion, the Trust will be classified for United
States federal income tax purposes as a grantor trust and will not be subject to
tax as a corporation. Accordingly, for United States federal income tax
purposes, you will generally be treated as the owner of an undivided interest in
the assets of the Trust, including the debentures. You will be required to
include in ordinary income for United States federal income tax purposes your
allocable share of interest (or OID, if any) paid or accrued on the debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under the Treasury regulations relating to OID, a debt instrument will be
deemed to be issued with OID if there is more than a "remote" contingency that
periodic stated interest payments due on the instrument will not be timely paid.
Because the exercise by Conseco of its option to defer payments of stated
interest on the debentures would prevent Conseco from (i) declaring dividends,or
engaging in certain other capital transactions, with respect to its capital
stock, or (ii) making any payment on any debt securities issued by Conseco which
rank equal with or junior to the debentures. Conseco believes that the
likelihood of its exercising the option is "remote" within the meaning of the
Treasury regulations. As a result, Conseco intends to take the position, based
on the advice of Tax Counsel, that the debentures will not be deemed to be
issued with OID. Based on this position, stated interest payments on the
debentures will be includible in your ordinary income at the time that such
payments are received or accrued in accordance with your regular method of
accounting. Because the Internal Revenue Service has not yet addressed the
Treasury regulations in any published rulings or other interpretations, it is
possible that the Internal Revenue Service could take a position contrary to the
position taken by Conseco. In that event, the Internal Revenue Service may, for
example, require you to include interest on the debentures in your taxable
income as it accrues rather than when you receive payment even though you use
the cash method of accounting for federal income tax purposes.
EXERCISE OF DEFERRAL OPTIONS
Under Treasury regulations, if Conseco were to exercise its option to defer
the payment of interest on the debentures, the debentures would be treated as
redeemed and reissued for OID purposes and the sum of the remaining interest
payments on the debentures would be treated as OID, which you would be required
to accrue and include in taxable income on an economic accrual basis (regardless
of your method of accounting for income tax purposes) over the remaining term of
the debentures (including any period of interest deferral), without regard to
the timing of payments under the debentures. The amount of interest income
includible in your taxable income would be determined on the basis of a constant
yield method over the remaining term of the debentures and the actual receipt of
future payments of stated interest on the debentures would no longer be
separately reported as taxable income. The amount of OID that would accrue, in
the aggregate, during the extended interest payment period would be
approximately equal to the amount of the cash payment due at the end of such
period. Any OID included in income would increase your adjusted tax basis in
your preferred securities, and your actual receipt of cash interest payments
would reduce your basis in the preferred securities.
CORPORATE US HOLDERS
Corporate US Holders of the preferred securities will not be entitled to a
dividends-received deduction for any income from the preferred securities.
SALES OF PREFERRED SECURITIES
If you sell your preferred securities, you will recognize gain or loss in
an amount equal to the difference between your adjusted tax basis in the
preferred securities and the amount realized from the sale (generally, your
selling price less any amount received in respect of accrued but unpaid interest
not previously included in your income). Your adjusted tax basis in the
preferred securities generally will equal (1) the initial purchase price that
you paid for the preferred securities plus (2) any accrued and unpaid
distributions that you were required to treat as OID less any cash distributions
received in respect of accrued OID. Gain or loss on the sale of preferred
securities generally will be capital gain or loss.
S-27
<PAGE> 28
The preferred securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest (or OID if the debentures are
treated as having been issued or reissued with OID) relating to the underlying
debentures. If you dispose of your preferred securities, you will be required to
include in ordinary income for United States federal income tax purposes any
portion of the amount realized that is attributable to accrued but unpaid
interest (including OID, if any) through the date of sale. This income inclusion
will increase your adjusted tax basis in the preferred securities but may not be
reflected in the sale price. To the extent the sale price is less than your
adjusted tax basis, you will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
RECEIPT OF DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
If Conseco dissolves the Trust and causes the Trust to distribute the
debentures on a pro rata basis to you, you will not be subject to tax. Rather,
you would have an adjusted tax basis in the debentures received in the
liquidation equal to the adjusted tax basis in your preferred securities
surrendered for the debentures. Your holding period for the debentures would
include the period during which you had held the preferred securities. If,
however, the Trust is classified, for United States federal income tax purposes,
as an association that is subject to tax as a corporation at the time of the
liquidation, the distribution of the debentures would constitute a taxable event
to you and you would acquire a new holding period in the debentures received.
If the debentures are redeemed for cash and the proceeds of the redemption
are distributed to you in redemption of your preferred securities, the
redemption would be treated as a sale of the preferred securities, in which gain
or loss would be recognized, as described immediately above.
INFORMATION REPORTING AND BACK-UP WITHHOLDING
Generally, income on the preferred securities will be reported to you on an
Internal Revenue Service Form 1099, which should be mailed to you by January 31
following each calendar year. If you fail to supply your correct taxpayer
identification number or under report your tax liability, the Internal Revenue
Service may require the property trustee or its agent to withhold federal income
tax at the rate of 31% from each interest payment. You will be permitted to
credit any withheld tax against your federal income tax liability.
NON-US HOLDERS
Payments to a Non-US Holder will generally not be subject to United States
federal withholding tax, provided the Non-US Holder:
- does not own (directly or indirectly, actually or constructively) 10% or
more of the total combined voting power of all classes of stock of
Conseco entitled to vote;
- is not a controlled foreign corporation that is related to Conseco
through stock ownership; and
- is not a bank receiving interest described in section 881(c)(3)(A) of the
Internal Revenue Code.
To qualify for this exemption from withholding, the last United States
payer in the chain of payment prior to payment to a Non-US Holder (the
"withholding agent") must have received in the year in which a payment of
interest or principal occurs, or in either of the two preceding calendar years,
a statement that:
- is signed by the Non-US Holder under penalties of perjury;
- certifies that the holder of the preferred securities is a Non-US Holder;
and
- provides the name and address of the Non-US Holder.
The statement may be made on an Internal Revenue Service Form W-8 or a
substantially similar form, and the Non-US Holder must inform the withholding
agent of any change in the information on the statement within 30 days of any
change. If the preferred securities are held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the withholding agent along with a
copy of Internal Revenue Service Form W-8 or the substitute form provided by the
Non-US Holder.
A Non-US Holder will generally not be subject to United States federal
withholding or income tax
S-28
<PAGE> 29
on any gain realized upon the sale or other disposition of the preferred
securities. If, however, a Non-US Holder holds the preferred securities in
connection with a trade or business conducted in the United States or is present
in the United States for 183 days or more during the taxable year of disposition
and certain other conditions are met, it may be subject to income tax on all
income and gains recognized.
NON-US HOLDER WITHHOLDING REGULATIONS
The Treasury Department has issued regulations which make certain
modifications to the withholding, backup withholding and information reporting
rules described above. These regulations attempt to unify certification
requirements and modify reliance standards. The regulations will generally be
effective for payments made after December 31, 2000, subject to certain
transition rules. Prospective investors are urged to consult their own tax
advisors regarding these regulations.
S-29
<PAGE> 30
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA
in the context of the Plan's particular circumstances before authorizing an
investment in the Preferred Securities with assets of the Plan. Accordingly,
among other factors, the fiduciary should consider whether the investment would
satisfy the prudence and diversification requirements of ERISA and would be
consistent with the documents and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or "disqualified
persons" under the Code ("Parties in Interest") with respect to such Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other liabilities under ERISA and/or Section 4975 of the Code for such persons,
unless exemptive relief is available under an applicable statutory or
administrative exemption.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA) and
foreign plans (as described in Section 4(b)(4) of ERISA) are not subject to the
requirements of ERISA or Section 4975 of the Code; however, such plans may be
subject to federal, state or local laws or regulations which affect their
ability to invest in the Preferred Securities. Any fiduciary of such a
governmental, church or foreign plan considering an investment in the Preferred
Securities should determine the need for, and, if necessary, the availability
of, any exemptive relief under such laws or regulations.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Trust would be deemed to be
"plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code if
"plan assets" of the Plan were used to acquire an equity interest in the Trust
and no exception were applicable under the Plan Assets Regulation. An "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features and
specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of the Trust would not be deemed to be "plan assets" of investing Plans
if, immediately after the most recent acquisition of any equity interest in the
Trust, less than 25% of the value of each class of equity interests in the Trust
were held by Plans, other employee benefit plans not subject to ERISA or Section
4975 of the Code (such as governmental, church and foreign plans), and entities
holding assets deemed to be "plan assets" of any Plan (collectively, "Benefit
Plan Investors"), or if the Preferred Securities were "publicly-offered
securities" for purposes of the Plan Assets Regulation. No assurance can be
given that the value of the Preferred Securities held by Benefit Plan Investors
will be less than 25% of the total value of such Preferred Securities at the
completion of the initial offering or thereafter, and no monitoring or other
measures will be taken with respect to the satisfaction of the conditions of
this exception. In addition, no assurance can be given that the Preferred
Securities would be considered to be "publicly-offered securities" under the
Plan Assets Regulation. All of the Common Securities will be purchased and held
by the Company.
Certain transactions involving the Trust could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a Plan if the Preferred Securities were acquired with "plan
assets" of such Plan and the assets of the Trust were deemed to be "plan assets"
of Plans investing in the Trust. For example, if the Company were a Party in
Interest with respect to a Plan (either directly or by reason of ownership of
its subsidiaries), extensions of credit between the Company and the Trust (as
represented by the Subordinated Debentures and the Trust Guarantee) would likely
be prohibited by Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the
Code, unless exemptive relief were available under an applicable administrative
exemption (see below). In addition, if the Company were considered to be a
fiduciary with respect to the Trust as a result of certain powers it holds (such
as the powers to remove and
S-30
<PAGE> 31
replace the Property Trustee and the Regular Trustees), certain operations of
the Trust, including the optional redemption or acceleration of the Subordinated
Debentures, could be considered to be prohibited transactions under Section
406(b) of ERISA and Section 4975(c)(1)(E) of the Code. In order to avoid such
prohibited transactions, each investing plan, by purchasing Preferred
Securities, will be deemed to have directed the Trust to invest in the
Subordinated Debentures and to have appointed the Property Trustee.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief if required for direct or indirect prohibited
transactions that may arise from the purchase or holding of the Preferred
Securities if assets of the Trust were deemed to be "plan assets" of Plans
investing in the Trust as described above. Those class exemptions are PTCE 96-23
(for certain transactions determined by in-house asset managers), PTCE 95-60
(for certain transactions involving insurance company general accounts), PTCE
91-38 (for certain transactions involving bank collective investment funds),
PTCE 90-1 (for certain transactions involving insurance company separate
accounts), and PTCE 84-14 (for certain transactions determined by independent
qualified asset managers).
Because the Preferred Securities may be deemed to be equity interests in
the Trust for purposes of ERISA and Section 4975 of the Code, the Preferred
Securities may not be purchased and should not be held by any Plan, any entity
whose underlying assets include "plan assets" by reason of any Plan's investment
in the entity (a "Plan Asset Entity") or any person investing "plan assets" of
any Plan, unless such purchaser or holder is eligible for the exemptive relief
available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption. Any purchaser or holder of the Preferred Securities or any interest
therein will be deemed to have represented by its purchase and holding thereof
that it either (a) is not a Plan or a Plan Asset Entity and is not purchasing
such securities on behalf of or with "plan assets" of any Plan, or (b) is
eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38, 90-1
or 84-14 or another applicable exemption with respect to such purchase or
holding.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is particularly
important that fiduciaries or other persons considering purchasing the Preferred
Securities on behalf of or with "plan assets" of any Plan consult with their
counsel regarding the potential consequences if the assets of the Trust were
deemed to be "plan assets" and the availability of exemptive relief under PTCE
96-23, 95-60, 91-38, 90-1 or 84-14 or any other applicable exemption.
THE DISCUSSION HEREIN OF ERISA IS GENERAL IN NATURE AND IS NOT INTENDED TO
BE COMPLETE. ANY FIDUCIARY OF A PLAN, GOVERNMENTAL PLAN OR CHURCH PLAN OR
FOREIGN PLAN CONSIDERING AN INVESTMENT IN THE PREFERRED SECURITIES SHOULD
CONSULT WITH ITS LEGAL ADVISORS REGARDING THE CONSEQUENCES AND ADVISABILITY OF
SUCH INVESTMENT.
Insurance companies considering an investment in the Preferred Securities
should note that the Small Business Job Protection Act of 1996 added new Section
401(c) of ERISA relating to the status of the assets of insurance company
general accounts under ERISA and Section 4975 of the Code. Pursuant to Section
401(c), the DOL issued proposed regulations (the "Proposed General Account
Regulations") in December, 1997 with respect to insurance policies that are
supported by an insurer's general account. The Proposed General Account
Regulations are intended to provide guidance on which assets held by the insurer
constitute "plan assets" of an ERISA Plan for purposes of the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code.
S-31
<PAGE> 32
UNDERWRITING
GENERAL
Subject to the terms and conditions of an underwriting agreement, the Trust
has agreed to sell to each of the underwriters named below, and each of the
underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, A.G.
Edwards & Sons, Inc., PaineWebber Incorporated, Prudential Securities
Incorporated, CIBC World Markets Corp., Credit Suisse First Boston Corporation,
Lehman Brothers Inc. are acting as the representatives, has severally agreed to
purchase from the Trust, the number of preferred securities set forth opposite
its name below:
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITER SECURITIES
- ------------------------------------------------------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
A.G. Edwards & Sons, Inc. ..................................
PaineWebber Incorporated....................................
Prudential Securities Incorporated..........................
CIBC World Markets Corp. ...................................
Credit Suisse First Boston Corporation......................
Lehman Brothers Inc.........................................
----------
Total........................................... 10,000,000
==========
</TABLE>
S-32
<PAGE> 33
In the underwriting agreement the several underwriters have agreed, subject
to the terms and conditions set forth in that agreement, to purchase all of the
preferred securities offered hereby if any of the preferred securities are
purchased. In the event of default by an underwriter, the underwriting agreement
provides that, in certain circumstances, the purchase commitments of the
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated.
Conseco and the Trust have agreed with the underwriters to indemnify them
against certain civil liabilities, including liabilities under the Securities
Act of 1933, or to contribute with respect to payments which the underwriters
may be required to make.
Certain of the underwriters and their affiliates have in the past and may
in the future engage in transactions with, or perform services for, Conseco or
its subsidiaries in the ordinary course of their businesses.
Conseco will pay all expenses, estimated to be approximately $ ,
associated with the offer and sale of the preferred securities.
COMMISSIONS AND DISCOUNTS
The underwriters will offer the preferred securities directly to the public
initially at $25 per preferred security. The underwriters may also offer the
preferred securities to certain dealers at the above-mentioned offering price
less a concession of $. per preferred security. The underwriters may allow, and
such dealers may reallow, a discount not in excess of $. per preferred security
to certain dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
Because the proceeds from the sale of the preferred securities will be used
to purchase the debentures, Conseco has agreed to pay to the underwriters an
underwriting commission of $. per preferred security (or a total of
$ ).
OVER-ALLOTMENT OPTION
The underwriters have an option to purchase up to 1,500,000 additional
preferred securities at the public offering price to cover over-allotments, if
any. The underwriters can exercise this option for a period of 30 days after the
date of this prospectus supplement. If the underwriters exercise this option,
each underwriter will have a firm commitment, subject to some conditions, to
purchase approximately the same percentage of any additional preferred
securities as the percentage of the preferred securities initially offered that
such underwriter has agreed to purchase.
The following table shows the underwriting commission per preferred
security and total underwriting commission to be paid by Conseco to the
underwriters and proceeds to the Trust. The amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase 1,500,000
additional preferred securities.
<TABLE>
<CAPTION>
PER WITHOUT WITH
TOPRS OPTION OPTION
--------- ------------ ------------
<S> <C> <C> <C>
Public offering
price.............. $ $ $
Underwriting
commission to be
paid by Conseco.... $ $ $
Proceeds to the
Trust.............. $ $ $
</TABLE>
NEW YORK STOCK EXCHANGE LISTING
Before this offering, there was no established public trading market for
the preferred securities. We plan to list the preferred securities on the New
York Stock Exchange under the symbol "CNCPrH", subject to official notice of
issuance. Trading of the preferred securities on the New York Stock Exchange is
expected to begin within 30 days of the issuance of the preferred securities. In
order to meet all of the requirements for listing the preferred securities on
the New York Stock Exchange, the underwriters have agreed to sell the preferred
securities to a minimum of 400 beneficial holders. The representatives have
advised Conseco that they intend to make a market in the preferred securities
prior to the commencement of trading on the New York Stock Exchange. However,
the representatives are not obligated to do so and may discontinue market making
at any time without notice. We cannot give any assurance that a liquid trading
market for the preferred securities will develop or be maintained.
NO SALES OF SIMILAR SECURITIES
Conseco and the Trust have agreed that, for 30 days after the date of this
prospectus supplement, they will not directly or indirectly
S-33
<PAGE> 34
offer, sell, offer to sell, grant any option for the sale of or otherwise
dispose of any preferred securities, any securities convertible into or
exchangeable for the preferred securities or any securities substantially
similar to the preferred securities, or any guarantee of such securities, or any
subordinated debt securities, or any securities convertible into or exchangeable
for such subordinated debt securities, that are substantially similar to the
debentures (except the debentures and the preferred securities offered hereby)
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
PRICE STABILIZATION AND SHORT POSITIONS
In connection with the sale of the preferred securities, SEC rules permit
the underwriters to engage in transactions that stabilize the price of the
preferred securities. These transactions may include purchases for the purpose
of fixing or maintaining the price of the preferred securities.
The underwriters may create a short position in the preferred securities in
connection with this offering. That means they may sell a larger number of the
preferred securities than is shown on the cover page of this prospectus
supplement. If they create a short position, the underwriters may purchase
preferred securities in the open market to reduce the short position.
If the underwriters purchase the preferred securities to stabilize the
price or to reduce their short position, the price of the preferred securities
could be higher than it might be if they had not made such purchases. The
underwriters make no representation or prediction about any effect that the
purchases may have on the price of the preferred securities.
The underwriters may suspend any of these activities at any time.
PENALTY BIDS
The representatives also may impose a penalty bid on certain underwriters
and selling group members. This means that, if the representatives purchase
preferred securities in the open market to reduce the underwriters' short
position or to stabilize the price of the preferred securities, they may reclaim
the amount of the selling concession from the underwriters and selling group
members who sold those preferred securities as part of this offering.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the preferred
securities will be passed upon on behalf of the Trust by Richards, Layton &
Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Trust. The
validity of the subordinated debentures, the trust guarantee and certain matters
relating thereto, will be passed upon on behalf of Conseco and the Trust by John
J. Sabl, Executive Vice President and General Counsel of the Company. Mr. Sabl
is a full-time employee and an officer of the Company and owns 80,000 shares of
Company Common Stock and holds options to purchase 450,000 shares of Conseco
common stock. Leagre Chandler & Millard LLP, Indianapolis, Indiana, will pass
upon certain legal matters on behalf of Conseco and the Trust. Certain legal
matters will be passed upon for the underwriters by LeBoeuf, Lamb, Greene &
MacRae, L.L.P., a limited liability partnership including professional
corporations, New York, New York. LeBoeuf, Lamb, Greene & MacRae, L.L.P.
represents Conseco from time to time in connection with certain legal matters.
EXPERTS
The consolidated financial statements of Conseco at December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998,
which are incorporated by reference in this prospectus, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report thereon, which as to the years 1997 and 1996, insofar as the financial
statements relate to Green Tree Financial Corporation, is based on the report of
KPMG LLP, independent auditors. The financial statements referred to above are
incorporated herein by reference in reliance upon these reports given upon the
authority of the firms as experts in accounting and auditing.
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<PAGE> 35
PROSPECTUS
$2,000,000,000
CONSECO, INC.
DEBT SECURITIES, PREFERRED STOCK, DEPOSITARY SHARES, COMMON STOCK, STOCK
PURCHASE CONTRACTS, STOCK PURCHASE UNITS AND WARRANTS
CONSECO FINANCING TRUST V
CONSECO FINANCING TRUST VI
CONSECO FINANCING TRUST VII
PREFERRED SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED
BY CONSECO, INC.
------------------------
Conseco, Inc., an Indiana corporation ("Conseco" or the "Company"), may
offer and sell from time to time, in one or more series, (i) its debt
securities, consisting of debentures, notes and/or other evidences of
indebtedness representing unsecured obligations of Conseco (the "Debt
Securities"), (ii) shares of its preferred stock, no par value per share
("Preferred Stock"), which may be represented by depositary shares (the
"Depositary Shares") as described herein, (iii) shares of its common stock, no
par value per share ("Common Stock"), (iv) Stock Purchase Contracts ("Stock
Purchase Contracts") to purchase shares of Common Stock, (v) Stock Purchase
Units, each representing ownership of a Stock Purchase Contract and Preferred
Securities (as defined herein) or debt obligations of third parties, including
U.S. Treasury securities, securing the holder's obligation to purchase Common
Stock under the Stock Purchase Contracts ("Stock Purchase Units") and (vi)
warrants to purchase Debt Securities, Preferred Stock, Common Stock or other
securities or rights ("Warrants").
Conseco Financing Trust V, Conseco Financing Trust VI and Conseco Financing
Trust VII (each, a "Conseco Trust"), statutory business trusts formed under the
laws of the State of Delaware, may offer, from time to time, preferred
securities, representing preferred undivided beneficial interests in the assets
of the respective Conseco Trusts ("Preferred Securities"). The payment of
periodic cash distributions ("Distributions") with respect to Preferred
Securities out of moneys held by each of the Conseco Trusts, and payments on
liquidation, redemption or otherwise with respect to such Preferred Securities,
will be guaranteed by the Company to the extent described herein (each, a "Trust
Guarantee"). See "Description of Preferred Securities" and "Description of Trust
Guarantees." The Company's obligations under the Trust Guarantees will rank
junior and subordinate in right of payment to all other liabilities of the
Company and pari passu with its obligations under the most senior preferred or
preference stock of the Company. See "Description of Trust Guarantees -- Status
of the Trust Guarantees." Subordinated Debt Securities (as defined herein) may
be issued and sold by the Company in one or more series to a Conseco Trust or a
trustee of such Conseco Trust in connection with the investment of the proceeds
from the offering of Preferred Securities and Common Securities (as defined
herein) of such Conseco Trust. The Subordinated Debt Securities purchased by a
Conseco Trust may be subsequently distributed pro rata to holders of Preferred
Securities and Common Securities in connection with the dissolution of such
Conseco Trust. The Debt Securities, Preferred Stock, Depositary Shares, Common
Stock, Stock Purchase Contracts, Stock Purchase Units, Warrants and Preferred
Securities are herein collectively referred to as the "Securities."
Certain specific terms of the particular Securities in respect of which
this Prospectus is being delivered will be set forth in an accompanying
supplement to this Prospectus (the "Prospectus Supplement"), which will
describe, without limitation and where applicable, the following: (i) in the
case of Debt Securities, the specific designation, aggregate principal amount,
ranking as senior or subordinated Debt Securities, denomination, maturity,
premium, if any, interest rate (which may be fixed or variable), time and method
of calculating interest, if any, place or places where principal of, premium, if
any, and interest, if any, on such Debt Securities will be payable, the
currencies or currency units in which principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable, any terms of
redemption or conversion, any sinking fund provisions, the
<PAGE> 36
purchase price, any listing on a securities exchange, any right of the Company
to defer payment of interest on the Debt Securities and the maximum length of
such deferral period and other special terms; (ii) in the case of Preferred
Stock and Depositary Shares, the specific designation, stated value and
liquidation preference per share and number of shares offered, the purchase
price, dividend rate (which may be fixed or variable), method of calculating
payment of dividends, place or places where dividends on such Preferred Stock
will be payable, any terms of redemption, dates on which dividends shall be
payable and dates from which dividends shall accrue, any listing on a securities
exchange, voting and other rights, including conversion or exchange rights, if
any, and other special terms, including whether interests in the Preferred Stock
will be represented by Depositary Shares and, if so, the fraction of a share of
Preferred Stock represented by each Depositary Share; (iii) in the case of
Common Stock, the number of shares offered, the initial offering price, market
price and dividend information; (iv) in the case of Stock Purchase Contracts,
the number of shares of Common Stock issuable thereunder, the purchase price of
the Common Stock, the date or dates on which the Common Stock is required to be
purchased by the holders of the Stock Purchase Contracts, any periodic payments
required to be made by the Company to the holders of the Stock Purchase
Contracts or vice versa, and the terms of the offering and sale thereof, (v) in
the case of Stock Purchase Units, the specific terms of the Stock Purchase
Contracts and any Preferred Securities or debt obligations of third parties
securing the holder's obligation to purchase the Common Stock under the Stock
Purchase Contracts, and the terms of the offering and sale thereof; (vi) in the
case of Warrants, the specific designation, the number, purchase price, exercise
price and other terms thereof, any listing of the Warrants or the underlying
Securities on a securities exchange or any other terms in connection with the
offering, sale and exercise of the Warrants, as well as the terms on which and
the Securities for which such Warrants may be exercised; and (vii) in the case
of Preferred Securities, the specific designation, number of securities,
liquidation amount per security, the purchase price, any listing on a securities
exchange, distribution rate (or method of calculation thereof), dates on which
distributions shall be payable and dates from which distributions shall accrue,
any voting rights, terms for any conversion or exchange into other securities,
any redemption, exchange or sinking fund provisions, any other rights,
preferences, privileges, limitations or restrictions relating to the Preferred
Securities, the specific terms and provisions of the Guarantee and the terms
upon which the proceeds of the sale of the Preferred Securities shall be used to
purchase a specific series of Subordinated Debt Securities of the Company.
The offering price to the public of the Securities will be limited to U.S.
$2,000,000,000 in the aggregate (or its equivalent (based on the applicable
exchange rate at the time of issue), if Securities are offered for consideration
denominated in one or more foreign currencies or currency units as shall be
designated by the Company). The Debt Securities may be denominated in United
States dollars or, at the option of the Company if so specified in the
applicable Prospectus Supplement, in one or more foreign currencies or currency
units. The Debt Securities may be issued in registered form or bearer form, or
both. If so specified in the applicable Prospectus Supplement, Securities of one
or more classes or series may be issued in whole or in part in the form of one
or more temporary or permanent global securities.
The Common Stock is listed on the New York Stock Exchange under the trading
symbol "CNC".
The Securities may be sold to or through underwriters, through dealers or
agents or directly to purchasers. See "Plan of Distribution." The names of any
underwriters, dealers or agents involved in the sale of the Securities in
respect of which this Prospectus is being delivered and any applicable fee,
commission or discount arrangements with them will be set forth in a Prospectus
Supplement. See "Plan of Distribution" for possible indemnification arrangements
for dealers, underwriters and agents.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June 22, 1998.
2
<PAGE> 37
State insurance holding company laws and regulations applicable to the
Company generally provide that no person may acquire control of the Company, and
thus indirect control of its insurance subsidiaries, unless such person has
provided certain required information to, and such acquisition is approved (or
not disapproved) by, the appropriate insurance regulatory authorities.
Generally, any person acquiring beneficial ownership of 10% or more of the
Common Stock would be presumed to have acquired such control, unless the
appropriate insurance regulatory authorities upon advance application determine
otherwise.
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR DEEMED
INCORPORATED BY REFERENCE HEREIN. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THOSE SECURITIES TO WHICH IT RELATES, IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Conseco with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the following regional offices of the Commission: New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the prescribed rates. In addition, the Commission maintains a Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission. Copies of such reports, proxy
statements and other information can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company and the Conseco Trusts have filed with the Commission a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. Statements contained herein or in any
Prospectus Supplement concerning the provisions of any document do not purport
to be complete and, in each instance, are qualified in all respects by reference
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. For further information with respect to
the Company, the Conseco Trusts and the Securities, reference is hereby made to
such Registration Statement, including the exhibits thereto and the documents
incorporated herein by reference, which can be examined at the Commission's
principal office, 450 Fifth Street, N.W., Washington, D.C. 20549, or copies of
which can be obtained from the Commission at such office upon payment of the
fees prescribed by the Commission.
No separate financial statements of the Conseco Trusts have been included
or incorporated by reference herein. The Company does not consider that such
financial statements would be material to holders of the Preferred Securities
because (i) all of the voting securities of the Conseco Trusts will be owned,
directly or indirectly, by the Company, a reporting company under the Exchange
Act, (ii) the Conseco Trusts have and will have no independent operations but
exist for the sole purpose of issuing securities representing undivided
beneficial interests in their assets and investing the proceeds thereof in
Subordinated Debt Securities issued by
3
<PAGE> 38
the Company, and (iii) the Company's obligations described herein and in any
accompanying Prospectus Supplement, under the Declaration (as defined herein)
(including the obligation to pay expenses of the Conseco Trusts), the
Subordinated Indenture and any supplemental indentures thereto, the Subordinated
Debt Securities issued to the Conseco Trust and the Trust Guarantees taken
together, constitute a full and unconditional guarantee by the Company of
payments due on the Preferred Securities. See "Description of Preferred
Securities of the Conseco Trusts" and "Description of Trust Guarantees."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by this reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1997
including Part III thereof which is incorporated by reference from the Company's
proxy statement dated April 10, 1998 for its annual meeting of shareholders (the
"Company's Annual Report");
2. Quarterly Reports on Form 10-Q for the quarter ended March 31, 1998;
3. Current Reports on Form 8-K dated February 4, 1998, April 6, 1998,
June 3, 1998, and June 4, 1998; and
4. The description of the Common Stock in its Registration Statements
filed pursuant to Section 12 of the Exchange Act, and any amendment or report
filed for the purpose of updating any such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference in this Prospectus or any Prospectus Supplement and to be part hereof
from the date of filing of such documents.
Any statement contained herein, or in a document incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
any Prospectus Supplement. To the extent that any proxy statement is
incorporated by reference herein, such incorporation shall not include any
information contained in such proxy statement that is not, pursuant to the
Commission's rules, deemed to be "filed" with the Commission or subject to the
liabilities of Section 18 of the Exchange Act.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into such documents). Any such request should be directed to James W.
Rosensteele, Senior Vice President, Corporate Communications, Conseco, Inc.,
11825 N. Pennsylvania Street, Carmel, Indiana 46032 (telephone number: (317)
817-2893).
4
<PAGE> 39
THE COMPANY
The Company is a financial services holding company. The Company develops,
markets and administers supplemental health insurance, annuity, life insurance,
individual and group major medical insurance and other insurance products. Since
1982, the Company has acquired 19 insurance groups. The Company's operating
strategy is to grow the insurance business within its subsidiaries by focusing
its resources on the development and expansion of profitable products and strong
distribution channels. The Company has supplemented such growth by acquiring
companies that have profitable niche products and strong distribution systems.
Once an insurance company has been acquired, the Company's operating strategy
has been to consolidate and streamline management and administrative functions
where appropriate, to realize superior investment returns through active asset
management, to eliminate unprofitable products and distribution channels, and to
expand and develop the profitable distribution channels and products.
The Company's executive offices are located at 11825 N. Pennsylvania
Street, Carmel, Indiana 46032. Its telephone number is (317) 817-6100.
THE CONSECO TRUSTS
Each of the Conseco Trusts is a statutory business trust formed under
Delaware law pursuant to (i) a declaration of trust (each a "Declaration")
executed by the Company as sponsor for such trust (the "Sponsor"), and the
Conseco Trustees (as defined herein) of such trust and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on May
23, 1997. Each Conseco Trust exists for the exclusive purposes of (i) issuing
and selling the Preferred Securities and common securities representing common
undivided beneficial interests in the assets of such Conseco Trust (the "Common
Securities" and, together with the Preferred Securities, the "Trust
Securities"), (ii) using the gross proceeds from the sale of the Trust
Securities to acquire the Subordinated Debt Securities and (iii) engaging in
only those other activities necessary, appropriate, convenient or incidental
thereto. All of the Common Securities will be directly or indirectly owned by
the Company. The Common Securities will rank pari passu, and payments will be
made thereon pro rata, with the Preferred Securities, except that, if an event
of default under the Declaration has occurred and is continuing, the rights of
the holders of the Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise will be subordinated to the
rights of the holders of the Preferred Securities. The Company will directly or
indirectly acquire Common Securities in an aggregate liquidation amount equal to
at least 3% of the total capital of each Conseco Trust.
Unless otherwise specified in the applicable Prospectus Supplement, each
Conseco Trust has a term of up to 55 years but may terminate earlier, as
provided in the Declaration. Each Conseco Trust's business and affairs will be
conducted by the trustees (the "Conseco Trustees") appointed by the Company as
the direct or indirect holder of all of the Common Securities. The holder of the
Common Securities will be entitled to appoint, remove or replace any of, or
increase or reduce the number of, the Conseco Trustees of each Conseco Trust.
The duties and obligations of the Conseco Trustees shall be governed by the
Declaration of such Conseco Trust. A majority of the Conseco Trustees (the
"Regular Trustees") of each Conseco Trust will be persons who are employees or
officers of or who are affiliated with the Company. One Conseco Trustee of each
Conseco Trust will be a financial institution that is not affiliated with the
Company and has a minimum amount of combined capital and surplus of not less
than $50,000,000, which shall act as property trustee and as indenture trustee
for the purposes of compliance with the provisions of Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), pursuant to the terms set forth in
the applicable Prospectus Supplement (the "Institutional Trustee"). In addition,
unless the Institutional Trustee maintains a principal place of business in the
State of Delaware and otherwise meets the requirements of applicable law, one
Conseco Trustee of each Conseco Trust will be an entity having a principal place
of business in, or a natural person resident of, the State of Delaware (the
"Delaware Trustee"). The Company will pay all fees and expenses related to the
Conseco Trust and the offering of the Trust Securities.
Unless otherwise specified in the applicable Prospectus Supplement, the
Institutional Trustee for each Conseco Trust shall be State Street Bank and
Trust Company. Unless otherwise specified in the applicable Prospectus
Supplement, the Delaware Trustee for each Conseco Trust shall be First Union
Trust Company, National Association, and its address in the State of Delaware is
One Rodney Square, 920 King Street, Wilmington, Delaware 19801. The principal
place of business of each Conseco Trust shall be c/o Conseco, Inc., 11825 N.
Pennsylvania Street, Carmel, Indiana 46032; telephone (317) 817-6100.
5
<PAGE> 40
USE OF PROCEEDS
Unless otherwise indicated in the accompanying Prospectus Supplement, the
net proceeds received by the Company from the sale of the Securities offered
hereby are expected to be used for general corporate purposes. The proceeds from
the sale of Preferred Securities by the Conseco Trusts will be invested in the
Subordinated Debt Securities of the Company. Except as may otherwise be
described in the Prospectus Supplement relating to such Preferred Securities,
the Company expects to use the net proceeds from the sale of such Subordinated
Debt Securities to the Conseco Trusts for general corporate purposes. Any
specific allocation of the proceeds to a particular purpose that has been made
at the date of any Prospectus Supplement will be described therein.
RATIOS OF EARNINGS TO FIXED CHARGES, EARNINGS TO FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
AND EARNINGS TO FIXED CHARGES, PREFERRED STOCK DIVIDENDS
AND DISTRIBUTIONS ON COMPANY-OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS
The following table sets forth the Company's ratios of earnings to fixed
charges, earnings to fixed charges and preferred stock dividends and earnings to
fixed charges, preferred stock dividends and distributions on Company-obligated
mandatorily redeemable preferred securities of subsidiary trusts for each of the
five years ended December 31, 1997 and for the three months ended March 31, 1997
and 1998.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
----- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges:
As reported............................ 2.19X 2.26X 1.57X 1.61X 2.04X 1.96X 2.28X
Excluding interest on annuities and
financial product policyholder
account balances(1)(2).............. 8.85X 4.55X 3.80X 4.55X 7.21X 7.36X 6.26X
Ratio of earnings to fixed charges and
preferred dividends:
As reported......................... 2.04X 1.95X 1.50X 1.50X 1.95X 1.74X 2.25X
Excluding interest on annuities and
financial product policyholder
account balances(1)(2)............ 6.00X 3.14X 3.06X 3.14X 5.77X 4.07X 5.93X
Ratio of earnings to fixed charges,
preferred dividends and distributions
on Company-obligated mandatorily
redeemable preferred securities of
subsidiary trusts:
As reported......................... 2.04X 1.95X 1.50X 1.49X 1.82X 1.65X 2.01X
Excluding interest on annuities and
financial product policyholder
account balances(1)(2)............ 6.00X 3.14X 3.06X 3.06X 4.20X 3.28X 4.05X
</TABLE>
- ---------------
(1) These ratios are included to assist the reader in analyzing the impact of
interest on annuities and financial products (which is not generally
required to be paid in cash in the period it is recognized). Such ratios are
not intended to, and do not, represent the following ratios prepared in
accordance with generally accepted accounting principles ("GAAP"): the ratio
of earnings to fixed charges; the ratio of earnings to fixed charges and
preferred dividends; or the ratio of earnings to fixed charges, preferred
dividends and distributions on Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts.
(2) Excludes interest credited to annuity and financial products of $408.5
million, $134.7 million, $585.4 million, $668.6 million and $806.7 million
for the years ended December 31, 1993, 1994, 1995, 1996 and 1997,
respectively, and $173.7 million and $188.4 million for the three months
ended March 31, 1997 and 1998, respectively.
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<PAGE> 41
DESCRIPTION OF DEBT SECURITIES
The Debt Securities offered hereby, consisting of notes, debentures and
other evidences of indebtedness, are to be issued in one or more series
constituting either senior Debt Securities ("Senior Debt Securities") or
subordinated Debt Securities ("Subordinated Debt Securities"). Unless otherwise
specified in the applicable Prospectus Supplement, the Debt Securities will be
issued pursuant to indentures described below (as applicable, the "Senior
Indenture" or the "Subordinated Indenture", each, an "Indenture" and, together,
the "Indentures"), in each case between the Company and the trustee identified
therein (the "Trustee"), the forms of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. Except for the
subordination provisions of the Subordinated Indenture, for which there are no
counterparts in the Senior Indenture, the provisions of the Subordinated
Indenture are substantially identical in substance to the provisions of the
Senior Indenture that bear the same section numbers.
The statements herein relating to the Debt Securities and the following
summaries of certain general provisions of the Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indentures (as they may be amended or supplemented
from time to time), including the definitions therein of certain terms
capitalized in this Prospectus. All article and section references appearing
herein are to articles and sections of the applicable Indenture and whenever
particular Sections or defined terms of the Indentures (as they may be amended
or supplemented from time to time) are referred to herein or in a Prospectus
Supplement, such Sections or defined terms are incorporated herein or therein by
reference.
GENERAL
The Debt Securities will be unsecured obligations of the Company. The
Indentures do not limit the aggregate amount of Debt Securities which may be
issued thereunder, nor do they limit the incurrence or issuance of other secured
or unsecured debt of the Company. The Debt Securities issued under the Senior
Indenture will be unsecured and will rank pari passu with all other unsecured
and unsubordinated obligations of the Company. The Debt Securities issued under
the Subordinated Indenture will be subordinate and junior in right of payment,
to the extent and in the manner set forth in the Subordinated Indenture, to all
Senior Indebtedness of the Company. See "-- Subordination under the Subordinated
Indenture."
Reference is made to the applicable Prospectus Supplement which will
accompany this Prospectus for a description of the specific series of Debt
Securities being offered thereby, including, but not limited to, the following:
(1) the title, designation and purchase price, of such Debt Securities,
including whether the Debt Securities are Senior Debt Securities or Subordinated
Debt Securities and whether such Debt Securities will be issued under the Senior
Indenture, the Subordinated Indenture or other indenture set forth in the
Prospectus Supplement; (2) any limit upon the aggregate principal amount of such
Debt Securities; (3) the date or dates on which the principal of and premium, if
any, on such Debt Securities will mature or the method of determining such date
or dates; (4) the rate or rates (which may be fixed or variable) at which such
Debt Securities will bear interest, if any, or the method of calculating such
rate or rates; (5) the date or dates from which interest, if any, will accrue or
the method by which such date or dates will be determined; (6) the date or dates
on which interest, if any, will be payable and the record date or dates
therefor; (7) the place or places where principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable; (8) the right, if
any, of the Company to defer payment of interest on Debt Securities and the
maximum length of any such deferral period; (9) the period or periods within
which, the price or prices at which, the currency or currencies (including
currency unit or units) in which, and the terms and conditions upon which, such
Debt Securities may be redeemed, in whole or in part, at the option of the
Company; (10) the obligation, if any, of the Company to redeem or purchase such
Debt Securities pursuant to any sinking fund or analogous provisions or upon the
happening of a specified event and the period or periods within which, the price
or prices at which and the other terms and conditions upon which, such Debt
Securities shall be redeemed or purchased, in whole or in part, pursuant to such
obligations; (11) the denominations in which such Debt Securities are authorized
to be issued; (12) the currency or currency unit for which Debt Securities may
be purchased or in which Debt Securities may be denominated and/or the currency
or currencies (including currency unit or units) in which principal of, premium,
if any, and interest, if
7
<PAGE> 42
any, on such Debt Securities will be payable and whether the Company or the
holders of any such Debt Securities may elect to receive payments in respect of
such Debt Securities in a currency or currency unit other than that in which
such Debt Securities are stated to be payable; (13) if other than the principal
amount thereof, the portion of the principal amount of such Debt Securities
which will be payable upon declaration of the acceleration of the maturity
thereof or the method by which such portion shall be determined; (14) the person
to whom any interest on any such Debt Security shall be payable if other than
the person in whose name such Debt Security is registered on the applicable
record date; (15) any addition to, or modification or deletion of, any Event of
Default or any covenant of the Company specified in the Indenture with respect
to such Debt Securities; (16) the application, if any, of such means of
defeasance or covenant defeasance as may be specified for such Debt Securities;
(17) whether such Debt Securities are to be issued in whole or in part in the
form of one or more temporary or permanent global securities and, if so, the
identity of the depositary for such global security or securities; (18) any
Federal income tax considerations applicable to holders of the Debt Securities;
and (19) any other special terms pertaining to such Debt Securities. Unless
otherwise specified in the applicable Prospectus Supplement, the Debt Securities
will not be listed on any securities exchange. (Section 3.1.)
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued in fully-registered form without coupons. Where Debt
Securities of any series are issued in bearer form, the special restrictions and
considerations, including special offering restrictions and special Federal
income tax considerations, applicable to any such Debt Securities and to payment
on and transfer and exchange of such Debt Securities will be described in the
applicable Prospectus Supplement. Bearer Debt Securities will be transferable by
delivery. (Section 3.5.)
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Certain Federal income tax consequences and
special considerations applicable to any such Debt Securities, or to Debt
Securities issued at par that are treated as having been issued at a discount,
will be described in the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is payable in one or
more foreign currencies or currency units or if any Debt Securities are
denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any Debt Securities is
payable in one or more foreign currencies or currency units, or by reference to
commodity prices, equity indices or other factors, the restrictions, elections,
certain Federal income tax considerations, specific terms and other information
with respect to such issue of Debt Securities and such foreign currency or
currency units or commodity prices, equity indices or other factors will be set
forth in the applicable Prospectus Supplement. In general, holders of such
series of Debt Securities may receive a principal amount on any principal
payment date, or a payment of premium, if any, on any premium interest payment
date or a payment of interest on any interest payment date, that is greater than
or less than the amount of principal, premium, if any, or interest otherwise
payable on such dates, depending on the value on such dates of the applicable
currency, commodity, equity index or other factor.
PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
Unless otherwise provided in the applicable Prospectus Supplement, payments
in respect of the Debt Securities will be made in the designated currency at the
office or agency of the Company maintained for that purpose as the Company may
designate from time to time, except that, at the option of the Company, interest
payments, if any, on Debt Securities in registered form may be made (i) by
checks mailed to the holders of Debt Securities entitled thereto at their
registered addresses or (ii) by wire transfer to an account maintained by the
person entitled thereto as specified in the Register. (Sections 3.7(a) and 9.2.)
Unless otherwise indicated in the applicable Prospectus Supplement, payment of
any installment of interest on Debt Securities in registered form will be made
to the person in whose name such Debt Security is registered at the close of
business on the regular record date for such interest. (Section 3.7(a).)
8
<PAGE> 43
Payment in respect of Debt Securities in bearer form will be made in the
currency and in the manner designated in the Prospectus Supplement, subject to
any applicable laws and regulations, at such paying agencies outside the United
States as the Company may appoint from time to time. The paying agents outside
the United States initially appointed by the Company for a series of Debt
Securities will be named in the Prospectus Supplement. The Company may at any
time designate additional paying agents or rescind the designation of any paying
agents, except that, if Debt Securities of a series are issuable as Registered
Securities, the Company will be required to maintain at least one paying agent
in each Place of Payment for such series and, if Debt Securities of a series are
issuable as Bearer Securities, the Company will be required to maintain a paying
agent in a Place of Payment outside the United States where Debt Securities of
such series and any coupons appertaining thereto may be presented and
surrendered for payment. (Section 9.2.)
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the agency
of the Company maintained for such purpose as designated by the Company from
time to time. (Sections 3.5 and 9.2.) Debt Securities may be transferred or
exchanged without service charge, other than any tax or other governmental
charge imposed in connection therewith. (Section 3.5.)
GLOBAL DEBT SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities of a series may be issued in whole or in part in the form of one
or more fully registered global securities (a "Registered Global Security") that
will be deposited with a depository (the "Depository") or with a nominee for the
Depository identified in the applicable Prospectus Supplement. In such a case,
one or more Registered Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding Debt Securities of the series to be represented by such
Registered Global Security or Securities. (Section 3.3.) Unless and until it is
exchanged in whole or in part for Debt Securities in definitive certificated
form, a Registered Global Security may not be registered for transfer or
exchange except as a whole by the Depository for such Registered Global Security
to a nominee of such Depository or by a nominee of such Depository to such
Depository or another nominee of such Depository or by such Depository or any
such nominee to a successor Depository for such series or a nominee of such
successor Depository and except in the circumstances described in the applicable
Prospectus Supplement. (Section 3.5.)
The specific terms of the depository arrangement with respect to any
portion of a series of Debt Securities to be represented by a Registered Global
Security will be described in the applicable Prospectus Supplement. Unless
otherwise specified in the applicable Prospectus Supplement, the Company expects
that the following provisions will apply to such depository arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to participants or persons that may hold interests through participants
(as such term is defined below). Upon the issuance of any Registered Global
Security, and the deposit of such Registered Global Security with or on behalf
of the Depository for such Registered Global Security, the Depository will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Debt Securities represented by such Registered Global
Security to the accounts of institutions ("participants") that have accounts
with the Depository or its nominee. The accounts to be credited will be
designated by the underwriters or agents engaging in the distribution of such
Debt Securities or by the Company, if such Debt Securities are offered and sold
directly by the Company. Ownership of beneficial interests by participants in
such Registered Global Security will be shown on, and the transfer of such
beneficial interests will be effected only through, records maintained by the
Depository for such Registered Global Security or by its nominee. Ownership of
beneficial interests in such Registered Global Security by persons that hold
through participants will be shown on, and the transfer of such beneficial
interests within such participants will be effected only through, records
maintained by such participants. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
certificated form. The foregoing limitations and such laws may impair the
ability to transfer beneficial interests in such Registered Global Security.
9
<PAGE> 44
So long as the Depository for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depository or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Registered Global Security for all
purposes under the applicable Indenture. Unless otherwise specified in the
applicable Prospectus Supplement and except as specified below, owners of
beneficial interests in such Registered Global Security will not be entitled to
have Debt Securities of the series represented by such Registered Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Debt Securities of such series in certificated form and
will not be considered the holders thereof for any purposes under the relevant
Indenture. (Section 3.8.) Accordingly, each person owning a beneficial interest
in such Registered Global Security must rely on the procedures of the Depository
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a holder
under the relevant Indenture. The Depository may grant proxies and otherwise
authorize participants to give or take any request, demand, authorization,
direction, notice, consent, waiver or other action which a holder is entitled to
give or take under the relevant Indenture. The Company understands that, under
existing industry practices, if the Company requests any action of holders or if
any owner of a beneficial interest in such Registered Global Security desires to
give any notice or take any action which a holder is entitled to give or take
under the relevant Indenture, the Depository would authorize the participants to
give such notice or take such action, and such participants would authorize
beneficial owners owning through such participants to give such notice or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
Unless otherwise specified in the applicable Prospectus Supplement,
payments with respect to principal, premium, if any, and interest, if any, on
Debt Securities represented by a Registered Global Security registered in the
name of a Depository or its nominee will be made to such Depository or its
nominee, as the case may be, as the registered owner of such Registered Global
Security.
The Company expects that the Depository for any Debt Securities represented
by a Registered Global Security, upon receipt of any payment of principal,
premium or interest, will immediately credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Registered Global Security as shown on the records
of such Depository. The Company also expects that payments by participants to
owners of beneficial interests in such Registered Global Security held through
such participants will be governed by standing instructions and customary
practices, as is now the case with the securities held for the accounts of
customers registered in "street names," and will be the responsibility of such
participants. None of the Company, the respective Trustees or any agent of the
Company or the respective Trustees shall have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial interests of a Registered Global Security, or for maintaining,
supervising or reviewing any records relating to such beneficial interests.
(Section 3.8.)
Unless otherwise specified in the applicable Prospectus Supplement, if the
Depository for any Debt Securities represented by a Registered Global Security
is at any time unwilling or unable to continue as Depository or ceases to be a
clearing agency registered under the Exchange Act and a duly registered
successor Depository is not appointed by the Company within 90 days, the Company
will issue such Debt Securities in definitive certificated form in exchange for
such Registered Global Security. In addition, the Company may at any time and in
its sole discretion determine not to have any of the Debt Securities of a series
represented by one or more Registered Global Securities and, in such event, will
issue Debt Securities of such series in definitive certificated form in exchange
for all of the Registered Global Security or Securities representing such Debt
Securities. (Section 3.5.)
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited with a depository, or with a nominee for such depository,
identified in the applicable Prospectus Supplement. Any such Bearer Global
Security may be issued in temporary or permanent form. (Section 3.4.) The
specific terms and procedures, including the specific terms of the depository
arrangement, with respect to any portion of a series of Debt Securities to be
represented by one or more Bearer Global Securities will be described in the
applicable Prospectus Supplement.
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CONSOLIDATION, MERGER OR SALE BY THE COMPANY
Unless otherwise specified in the applicable Prospectus Supplement, the
Company shall not consolidate with or merge into any other corporation or sell
its assets substantially as an entirety, unless: (i) the corporation formed by
such consolidation or into which the Company is merged or the corporation which
acquires its assets is organized in the United States; (ii) the corporation
formed by such consolidation or into which the Company is merged or which
acquires the Company's assets substantially as an entirety expressly assumes all
of the obligations of the Company under each Indenture; (iii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
happened and be continuing, and (iv) if, as a result of such transaction,
properties or assets of the Company would become subject to an encumbrance which
would not be permitted by the terms of any series of Debt Securities, the
Company or the successor corporation, as the case may be, shall take such steps
as are necessary to secure such Debt Securities equally and ratably with all
indebtedness secured thereunder. Upon any such consolidation, merger or sale,
the successor corporation formed by such consolidation, or into which the
Company is merged or to which such sale is made, shall succeed to, and be
substituted for the Company under each Indenture. (Section 7.1.)
EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT
Each Indenture provides that, if an Event of Default specified therein
occurs with respect to the Debt Securities of any series and is continuing, the
Trustee for such series or the holders of 25% in aggregate principal amount of
all of the outstanding Debt Securities of that series, by written notice to the
Company (and to the Trustee for such series, if notice is given by such holders
of Debt Securities), may declare the principal of (or, if the Debt Securities of
that series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount specified in the Prospectus Supplement) and
accrued interest on all the Debt Securities of that series to be due and payable
(provided, with respect to any Debt Securities issued under the Subordinated
Indenture, that the payment of principal and interest on such Debt Securities
shall remain subordinated to the extent provided in Article 12 of the
Subordinated Indenture). (Section 5.2.)
Unless otherwise specified in the applicable Prospectus Supplement, Events
of Default with respect to Debt Securities of any series are defined in each
Indenture as being: (a) default for 30 days in payment of any interest on any
Debt Security of that series or any coupon appertaining thereto or any
additional amount payable with respect to Debt Securities of such series as
specified in the applicable Prospectus Supplement when due; (b) default in
payment of principal, or premium, if any, at maturity or on redemption or
otherwise, or in the making of a mandatory sinking fund payment of any Debt
Securities of that series when due; (c) default for 60 days after notice to the
Company by the Trustee for such series, or by the holders of 25% in aggregate
principal amount of the Debt Securities of such series then outstanding, in the
performance of any other agreement in the Debt Securities of that series, in the
Indenture or in any supplemental indenture or board resolution referred to
therein under which the Debt Securities of that series may have been issued; (d)
default resulting in acceleration of other indebtedness of the Company for
borrowed money where the aggregate principal amount so accelerated exceeds $25
million and such acceleration is not rescinded or annulled within 30 days after
the written notice thereof to the Company by the Trustee or to the Company and
the Trustee by the holders of 25% in aggregate principal amount of the Debt
Securities of such series then outstanding, provided that such Event of Default
will be remedied, cured or waived if the default that resulted in the
acceleration of such other indebtedness is remedied, cured or waived; and (e)
certain events of bankruptcy, insolvency or reorganization of the Company.
(Section 5.1.) The definition of "Event of Default" in each Indenture
specifically excludes a default under a secured debt under which the obligee has
recourse (exclusive of recourse for ancillary matters such as environmental
indemnities, misapplication of funds, costs of enforcement, etc.) only to the
collateral pledged for repayment, and where the fair market value of such
collateral does not exceed two percent of Total Assets (as defined in the
Indenture) at the time of the default. Events of Default with respect to a
specified series of Debt Securities may be added to the Indenture and, if so
added, will be described in the applicable Prospectus Supplement. (Sections 3.1
and 5.1(7).)
Each Indenture provides that the Trustee will, within 90 days after the
occurrence of a Default with respect to the Debt Securities of any series, give
to the holders of the Debt Securities of that series notice of all Defaults
known to it unless such Default shall have been cured or waived; provided that
except in the case of
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a Default in payment on the Debt Securities of that series, the Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding such notice is in the interests of the
holders of the Debt Securities of that series. (Section 6.6.) "Default" means
any event which is, or after notice or passage of time or both, would be, an
Event of Default. (Section 1.1.)
Each Indenture provides that the holders of a majority in aggregate
principal amount of the Debt Securities of each series affected (with each such
series voting as a class) may, subject to certain limited conditions, direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee for such series, or exercising any trust or power conferred on such
Trustee. (Section 5.8.)
Each Indenture includes a covenant that the Company will file annually with
the Trustee a certificate as to the Company's compliance with all conditions and
covenants of such Indenture. (Section 9.5.)
The holders of a majority in aggregate principal amount of any series of
Debt Securities by notice to the Trustee for such series may waive, on behalf of
the holders of all Debt Securities of such series, any past Default or Event of
Default with respect to that series and its consequences except a Default or
Event of Default in the payment of the principal of, premium, if any, or
interest, if any, on any Debt Security, and except in respect of an Event of
Default resulting from the breach of a covenant or provision of either Indenture
which, pursuant to the applicable Indenture, cannot be amended or modified
without the consent of the holders of each outstanding Debt Security of such
series affected. (Section 5.7.)
OPTION TO DEFER INTEREST PAYMENTS
If provided in the applicable Prospectus Supplement, the Company shall have
the right at any time and from time to time during the term of the series of
Debt Securities to defer the payment of interest for such number of consecutive
interest payment periods as may be specified in the applicable Prospectus
Supplement (each, an "Extension Period"), subject to the terms, conditions and
covenants, if any, specified in such Prospectus Supplement, provided that such
Extension Period may not extend beyond the stated maturity of the Debt
Securities. Certain material United States Federal income tax consequences and
special considerations applicable to any such Debt Securities will be described
in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, at the
end of such Extension Period, the Company shall pay all interest then accrued
and unpaid together with interest thereon compounded semiannually at the rate
specified for the Debt Securities to the extent permitted by applicable law
("Compound Interest"); provided, that during any such Extension Period, (a) the
Company shall not declare or pay dividends on, make distributions with respect
to, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of its capital stock (other than (i) purchases or acquisitions of capital
stock of the Company in connection with the satisfaction by the Company of its
obligations under any employee or agent benefit plans or the satisfaction by the
Company of its obligations pursuant to any contract or security outstanding on
the date of such event requiring the Company to purchase capital stock of the
Company, (ii) as a result of a reclassification of the Company's capital stock
or the exchange or conversion of one class or series of the Company's capital
stock for another class or series of the Company's capital stock, (iii) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion of exchange provisions of such capital stock or the
security being conversed or exchanged, (iv) dividends or distributions in
capital stock of the Company (or rights to acquire capital stock) or repurchases
or redemptions of capital stock solely from the issuance or exchange of capital
stock or (v) redemptions or repurchases of any rights outstanding under a
shareholder rights plan), (b) the Company shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank junior to the Debt Securities,
and (c) the Company shall not make any guarantee payments with respect to the
foregoing (other than payments pursuant to the Trust Guarantee or the Common
Guarantee (as defined herein)). Prior to the termination of any such Extension
Period, the Company may further defer payments of interest by extending the
interest payment period; provided, however, that, such Extension Period,
including all such previous and further extensions, may not extend beyond the
maturity of the Debt Securities. Upon the termination of any Extension Period
and the payment of all amounts then due, the Company may commence a new
Extension Period, subject to the terms set forth in this section. No
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interest during an Extension Period, except at the end thereof, shall be due and
payable, but the Company may prepay at any time all or any portion of the
interest accrued during an Extension Period. The Company has no present
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Debt Securities. If the Institutional Trustee
shall be the sole holder of the Debt Securities, the Company shall give the
Regular Trustees and the Institutional Trustee notice of its selection of such
Extension Period one Business Day prior to the earlier of (i) the date
distributions on the Preferred Securities are payable or (ii) the date the
Regular Trustees are required to give notice to the New York Stock Exchange (or
other applicable self-regulatory organization) or to holders of the Preferred
Securities of the record or payment date of such distribution. The Regular
Trustees shall give notice of the Company's selection of such Extension Period
to the holders of the Preferred Securities. If the Institutional Trustee shall
not be the sole holder of the Debt Securities, the Company shall give the
holders of the Debt Securities notice of its selection of such Extension Period
ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii)
the date upon which the Company is required to give notice to the New York Stock
Exchange (or other applicable self-regulatory organization) or to holders of the
Debt Securities of the record or payment date of such related interest payment.
MODIFICATION OF THE INDENTURES
Unless otherwise specified in the applicable Prospectus Supplement, each
Indenture contains provisions permitting the Company and the Trustee to enter
into one or more supplemental indentures without the consent of the holders of
any of the Debt Securities in order (i) to evidence the succession of another
corporation to the Company and the assumption of the covenants of the Company by
a successor to the Company; (ii) to add to the covenants of the Company or
surrender any right or power of the Company; (iii) to add additional Events of
Default with respect to any series of Debt Securities; (iv) to add or change any
provisions to such extent as necessary to permit or facilitate the issuance of
Debt Securities in bearer form; (v) to change or eliminate any provision
affecting only Debt Securities not yet issued; (vi) to secure the Debt
Securities; (vii) to establish the form or terms of Debt Securities; (viii) to
evidence and provide for successor Trustees; (ix) if allowed without penalty
under applicable laws and regulations, to permit payment in respect of Debt
Securities in bearer form in the United States; (x) to correct any defect or
supplement any inconsistent provisions or to make any other provisions with
respect to matters or questions arising under such Indenture, provided that such
action does not adversely affect the interests of any holder of Debt Securities
of any series; or (xi) to cure any ambiguity or correct any mistake. The
Subordinated Indenture also permits the Company and the Trustee thereunder to
enter into such supplemental indentures to modify the subordination provisions
contained in the Subordinated Debenture except in a manner adverse to any
outstanding Debt Securities. (Section 8.1.)
Unless otherwise specified in the applicable Prospectus Supplement, each
Indenture also contains provisions permitting the Company and the Trustee, with
the consent of the holders of a majority in aggregate principal amount of the
outstanding Debt Securities affected by such supplemental indenture (with the
Debt Securities of each series voting as a class), to execute supplemental
indentures adding any provisions to or changing or eliminating any of the
provisions of such Indenture or any supplemental indenture or modifying the
rights of the holders of Debt Securities of such series, except that, without
the consent of the holder of each Debt Security so affected, no such
supplemental indenture may: (i) change the time for payment of principal or
premium, if any, or interest on any Debt Security; (ii) reduce the principal of,
or any installment of principal of, or premium, if any, or interest on any Debt
Security, or change the manner in which the amount of any of the foregoing is
determined; (iii) reduce the amount of premium, if any, payable upon the
redemption of any Debt Security; (iv) reduce the amount of principal payable
upon acceleration of the maturity of any Original Issue Discount or Index
Security; (v) change the currency or currency unit in which any Debt Security or
any premium or interest thereon is payable; (vi) impair the right to institute
suit for the enforcement of any payment on or with respect to any Debt Security;
(vii) reduce the percentage in principal amount of the outstanding Debt
Securities affected thereby the consent of whose holders is required for
modification or amendment of such Indenture or for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults; (viii)
change the obligation of the Company to maintain an office or agency in the
places and for the purposes specified in such Indenture; (ix) modify the
provisions relating to
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the subordination of outstanding Debt Securities of any series in a manner
adverse to the holders thereof; or (x) modify the provisions relating to waiver
of certain defaults or any of the foregoing provisions. (Section 8.2.)
SUBORDINATION UNDER THE SUBORDINATED INDENTURE
The Subordinated Indenture provides that any Subordinated Debt Securities
issued thereunder are subordinated in right of payment to all Senior
Indebtedness to the extent provided in the Subordinated Indenture. (Section 12.1
of the Subordinated Indenture.) The Subordinated Indenture defines the term
"Senior Indebtedness" as: (i) all indebtedness of the Company, whether
outstanding on the date of the Subordinated Indenture or thereafter created,
incurred or assumed, which is for money borrowed, or evidenced by a note or
similar instrument given in connection with the acquisition of any business,
properties or assets, including securities; (ii) any indebtedness of others of
the kinds described in the preceding clause (i) for the payment of which the
Company is responsible or liable as guarantor or otherwise; and (iii)
amendments, renewals, extensions and refundings of any such indebtedness. The
Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of the Senior Indebtedness or extension or
renewal of the Senior Indebtedness. Senior Indebtedness does not include (A) any
indebtedness of the Company to any of its subsidiaries, (B) indebtedness
incurred for the purchase of goods or materials or for services obtained in the
ordinary course of business and (C) any indebtedness which by its terms is
expressly made pari passu with or subordinated to the Subordinated Debt
Securities. (Section 12.2 of the Subordinated Indenture.)
If (i) the Company defaults in the payment of any principal, or premium, if
any, or interest on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or declaration or
otherwise or (ii) an event of default occurs with respect to any Senior
Indebtedness permitting the holders thereof to accelerate the maturity thereof
and written notice of such event of default (requesting that payments on
Subordinated Debt Securities cease) is given to the Company by the holders of
Senior Indebtedness, then unless and until such default in payment or event of
default shall have been cured or waived or shall have ceased to exist, no direct
or indirect payment (in cash, property or securities, by set-off or otherwise)
shall be made or agreed to be made on account of the Subordinated Debt
Securities or interest thereon or in respect of any repayment, redemption,
retirement, purchase or other acquisition of Subordinated Debt Securities.
(Section 12.4 of the Subordinated Indenture.)
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Company, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding-up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors or (iv) any
other marshalling of the assets of the Company, all Senior Indebtedness
(including, without limitation, interest accruing after the commencement of any
such proceeding, assignment or marshalling of assets) shall first be paid in
full before any payment or distribution, whether in cash, securities or other
property, shall be made by the Company on account of Subordinated Debt
Securities. In any such event, any payment or distribution, whether in cash,
securities or other property (other than securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinate, at least to the extent provided in the
subordination provisions of the Subordinated Indenture with respect to the
indebtedness evidenced by Subordinated Debt Securities, to the payment of all
Senior Indebtedness at the time outstanding and to any securities issued in
respect thereof under any such plan of reorganization or readjustment), which
would otherwise (but for the subordination provisions) be payable or deliverable
in respect of Subordinated Debt Securities (including any such payment or
distribution which may be payable or deliverable by reason of the payment of any
other indebtedness of the Company being subordinated to the payment of
Subordinated Debt Securities) shall be paid or delivered directly to the holders
of Senior Indebtedness, or to their representative or trustee, in accordance
with the priorities then existing among such holders until all Senior
Indebtedness shall have been paid in full. (Section 12.3 of the Subordinated
Indenture.) No present or future holder of any Senior Indebtedness shall be
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prejudiced in the right to enforce subordination of the indebtedness evidenced
by Subordinated Debt Securities by any act or failure to act on the part of the
Company. (Section 12.9 of the Subordinated Indenture.)
Senior Indebtedness shall not be deemed to have been paid in full unless
the holders thereof shall have received cash, securities or other property equal
to the amount of such Senior Indebtedness then outstanding. Upon the payment in
full of all Senior Indebtedness, the holders of Subordinated Debt Securities
shall be subrogated to all the rights of any holders of Senior Indebtedness to
receive any further payments or distributions applicable to the Senior
Indebtedness until all Subordinated Debt Securities shall have been paid in
full, and such payments or distributions received by any holder of Subordinated
Debt Securities, by reason of such subrogation, of cash, securities or other
property which otherwise would be paid or distributed to the holders of Senior
Indebtedness, shall, as between the Company and its creditors other than the
holders of Senior Indebtedness, on the one hand, and the holders of Subordinated
Debt Securities, on the other, be deemed to be a payment by the Company on
account of Senior Indebtedness, and not on account of Subordinated Debt
Securities. (Section 12.7 of the Subordinated Indenture.)
The Subordinated Indenture provides that the foregoing subordination
provisions, insofar as they relate to any particular issue of Subordinated Debt
Securities, may be changed prior to such issuance. Any such change would be
described in the applicable Prospectus Supplement relating to such Subordinated
Debt Securities.
DEFEASANCE AND COVENANT DEFEASANCE
If indicated in the applicable Prospectus Supplement, the Company may elect
either (i) to defease and be discharged from any and all obligations with
respect to the Debt Securities of or within any series (except as otherwise
provided in the relevant Indenture) ("defeasance") or (ii) to be released from
its obligations with respect to certain covenants applicable to the Debt
Securities of or within any series ("covenant defeasance"), upon the deposit
with the relevant Trustee (or other qualifying trustee), in trust for such
purpose, of money and/or Government Obligations which through the payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient, without reinvestment, to pay the principal of and any premium
or interest on such Debt Securities to Maturity or redemption, as the case may
be, and any mandatory sinking fund or analogous payments thereon. As a condition
to defeasance or covenant defeasance, the Company must deliver to the Trustee an
Opinion of Counsel to the effect that the Holders of such Debt Securities will
not recognize income, gain or loss for Federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to Federal income
tax on the same amounts and in the same manner and at the same times as would
have been the case if such defeasance or covenant defeasance had not occurred.
Such Opinion of Counsel, in the case of defeasance under clause (i) above, must
refer to and be based upon a ruling of the Internal Revenue Service or a change
in applicable Federal income tax law occurring after the date of the relevant
Indenture. (Article 4.) If indicated in the applicable Prospectus Supplement, in
addition to obligations of the United States or an agency or instrumentality
thereof, Government Obligations may include obligations of the government or an
agency or instrumentality of the government issuing the currency or currency
unit in which Debt Securities of such series are payable. (Section 3.1.)
In addition, with respect to the Subordinated Indenture, in order to be
discharged no event or condition shall exist that, pursuant to certain
provisions described under "-- Subordination under the Subordinated Indenture"
above, would prevent the Company from making payments of principal of (and
premium, if any) and interest on Subordinated Debt Securities at the date of the
irrevocable deposit referred to above. (Section 4.6(j) of the Subordinated
Indenture.)
The Company may exercise its defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its defeasance option, payment of such Debt Securities
may not be accelerated because of a Default or an Event of Default. (Section
4.4.) If the Company exercises its covenant defeasance option, payment of such
Debt Securities may not be accelerated by reason of a Default or an Event of
Default with respect to the covenants to which such covenant defeasance is
applicable. However, if such acceleration were to occur by reason of another
Event of Default, the realizable
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value at the acceleration date of the money and Government Obligations in the
defeasance trust could be less than the principal and interest then due on such
Debt Securities, in that the required deposit in the defeasance trust is based
upon scheduled cash flow rather than market value, which will vary depending
upon interest rates and other factors.
THE TRUSTEES
Unless otherwise specified in the applicable Prospectus Supplement, LTCB
Trust Company will be the Trustee under the Senior Indenture, and State Street
Bank and Trust Company will be the Trustee under the Subordinated Indenture. The
Company may also maintain banking and other commercial relationships with each
of the Trustees and their affiliates in the ordinary course of business.
DESCRIPTION OF CAPITAL STOCK
At May 21, 1998 the authorized capital stock of the Company was
1,020,000,000 shares, consisting of:
(a) 20,000,000 shares of Preferred Stock, of which 1,889,400 shares of
Preferred Redeemable Increased Dividend Equity Securities, 7% PRIDES
("PRIDES"), were outstanding; and
(b) 1,000,000,000 shares of Common Stock, of which 187,126,301 shares were
outstanding.
In general, the classes of authorized capital stock are afforded
preferences with respect to dividends and liquidation rights in the order listed
above. The Board of Directors of the Company is empowered, without approval of
the shareholders, to cause the Preferred Stock to be issued in one or more
series, with the numbers of shares of each series and the rights, preferences
and limitations of each series to be determined by it including, without
limitation, the dividend rights, conversion rights, redemption rights and
liquidation preferences, if any, of any wholly unissued series of Preferred
Stock (or of the entire class of Preferred Stock if none of such shares have
been issued), the number of shares constituting each such series and the terms
and conditions of the issue thereof. The descriptions set forth below do not
purport to be complete and are qualified in their entirety by reference to the
Amended and Restated Articles of Incorporation of the Company, as amended (the
"Articles of Incorporation").
The Prospectus Supplement relating to an offering of Common Stock will
describe terms relevant thereto, including the number of shares offered, the
initial offering price, market price and dividend information.
PREFERRED STOCK
The applicable Prospectus Supplement will describe the following terms of
any Preferred Stock in respect of which this Prospectus is being delivered (to
the extent applicable to such Preferred Stock): (i) the specific designation,
number of shares, seniority and purchase price; (ii) any liquidation preference
per share; (iii) any date of maturity; (iv) any redemption, repayment or sinking
fund provisions; (v) any dividend rate or rates and the dates on which any such
dividends will be payable (or the method by which such rates or dates will be
determined); (vi) any voting rights; (vii) if other than the currency of the
United States of America, the currency or currencies, including composite
currencies, in which such Preferred Stock is denominated and/or in which
payments will or may be payable; (viii) the method by which amounts in respect
of such Preferred Stock may be calculated and any commodities, currencies or
indices, or value, rate or price, relevant to such calculation; (ix) whether the
Preferred Stock is convertible or exchangeable and, if so, the securities or
rights into which such Preferred Stock is convertible or exchangeable (which may
include other Preferred Stock, Debt Securities, Common Stock or other securities
or rights of the Company (including rights to receive payment in cash or
securities based on the value, rate or price of one or more specified
commodities, currencies or indices) or a combination of the foregoing), and the
terms and conditions upon which such conversions or exchanges will be effected,
including the initial conversion or exchange prices or rates, the conversion or
exchange period and any other related provisions; (x) the place or places where
dividends and other payments on the Preferred Stock will be payable; and (xi)
any additional voting, dividend, liquidation, redemption and other rights,
preferences, privileges, limitations and restrictions.
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As described under "Description of Depositary Shares", the Company may, at
its option, elect to offer Depositary Shares evidenced by depositary receipts
("Depositary Receipts"), each representing an interest (to be specified in the
applicable Prospectus Supplement relating to the particular series of the
Preferred Stock) in a share of the particular series of the Preferred Stock
issued and deposited with a Preferred Stock Depositary (as defined herein).
All shares of Preferred Stock offered hereby, or issuable upon conversion,
exchange or exercise of Securities, will, when issued, be fully paid and
non-assessable.
COMMON STOCK
Dividends. Except as provided below, holders of Common Stock are entitled
to receive dividends and other distributions in cash, stock or property of the
Company, when, as and if declared by the Board of Directors out of assets or
funds of the Company legally available therefor and shall share equally on a per
share basis in all such dividends and other distributions (subject to the rights
of holders of Preferred Stock).
Voting Rights. At every meeting of shareholders, every holder of Common
Stock is entitled to one vote per share. Subject to any voting rights which may
be granted to holders of Preferred Stock any action submitted to shareholders is
approved if the number of votes cast in favor of such action exceeds the number
of votes against, except where other provision is made by law and subject to
applicable quorum requirements.
Liquidation Rights. In the event of any liquidation, dissolution or
winding-up of the business of the Company, whether voluntary or involuntary (any
such event, a "Liquidation"), the holders of Common Stock are entitled to share
equally in the assets available for distribution after payment of all
liabilities and provision for the liquidation preference of any shares of
Preferred Stock then outstanding.
Miscellaneous. The holders of Common Stock have no preemptive rights,
cumulative voting rights, subscription rights, or conversion rights and the
Common Stock is not subject to redemption.
The transfer agent and registrar with respect to the Common Stock and the
PRIDES is First Union National Bank.
All shares of Common Stock offered hereby, or issuable upon conversion,
exchange or exercise of Securities, will, when issued, be fully paid and
non-assessable. The Common Stock is traded on the New York Stock Exchange under
the symbol "CNC".
PRIDES
General. The PRIDES are shares of convertible preferred stock and rank
prior to the Common Stock as to payment of dividends and distribution of assets
upon liquidation. The shares of PRIDES mandatorily convert into shares of Common
Stock on February 1, 2000, (the "Mandatory Conversion Date"), and the Company
has the option to redeem the shares of PRIDES, in whole or in part, at any time
and from time to time on or after February 1, 1999 and prior to the Mandatory
Conversion Date pursuant to the terms described below and payable in shares of
Common Stock. In addition, the shares of PRIDES are convertible into shares of
Common Stock at the option of the holder at any time prior to the Mandatory
Conversion Date as set forth below.
Dividends. Holders of shares of PRIDES are entitled to receive annual
cumulative dividends at a rate per annum of 7% of the stated liquidation
preference (equivalent to $4.279 per each share of PRIDES) payable quarterly in
arrears on each February 1, May 1, August 1, and November 1.
Mandatory Conversion. On the Mandatory Conversion Date, unless previously
redeemed or converted, each outstanding share of PRIDES will mandatorily convert
into (i) four shares of Common Stock, subject to adjustment in certain events,
and (ii) the right to receive cash in an amount equal to all accrued and unpaid
dividends thereon (other than previously declared dividends payable to a holder
of record as of a prior date).
Optional Redemption. Shares of PRIDES are not redeemable prior to February
1, 1999. At any time and from time to time on or after February 1, 1999 and
ending immediately prior to the Mandatory Conversion Date, the Company may
redeem any or all of the outstanding shares of PRIDES. Upon any such
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redemption, each holder will receive, in exchange for each share of PRIDES, the
number of shares of Common Stock equal to the Call Price (which is the sum of
(i) $62.195, declining after February 1, 1999 to $61.125 until the Mandatory
Conversation Date and (ii) all accrued and unpaid dividends thereon (other than
previously declared dividends payable to a holder of record as of a prior date))
divided by the current market price on the applicable date of determination, but
in no event less than 3.42 shares of Common Stock, subject to adjustment. The
number of shares of Common Stock to be delivered in payment of the applicable
Call Price will be determined on the basis of the current market price of the
Common Stock prior to the announcement of the redemption.
Conversion at the Option of the Holder. At any time prior to the Mandatory
Conversion Date, unless previously redeemed, each share of PRIDES is convertible
at the option of the holder thereof into 3.42 shares of Common Stock (the
"Optional Conversion Rate"), equivalent to the conversion price of $17.8728 per
share of Common Stock, subject to adjustment as described herein. The right of
holders to convert shares of PRIDES called for redemption will terminate
immediately prior to the close of business on the redemption date.
Voting Rights. The holders of shares of PRIDES have the right with the
holders of Common Stock to vote in the election of directors and upon each other
matter coming before any meeting of the holders of Common Stock on the basis of
4/5 of one vote for each share of PRIDES. On such matters, the holders of shares
of PRIDES and the holders of Common Stock vote together as one class except as
otherwise provided by law or the Articles of Incorporation. In addition, (i)
whenever dividends on the shares of PRIDES or any other series of Preferred
Stock with like voting rights are in arrears and unpaid for six quarterly
dividend periods, and in certain other circumstances, the holders of the shares
of PRIDES (voting separately as a class with the holders of all other series of
Preferred Stock with like voting rights that are exercisable) will be entitled
to vote, on the basis of one vote for each share of PRIDES, for the election of
two directors of the Company, such directors to be in addition to the number of
directors constituting the Board of Directors immediately prior to the accrual
of such right, and (ii) the holders of the shares of PRIDES may have voting
rights with respect to certain alterations of the Articles of Incorporation and
certain other matters, voting on the same basis or separately as a series.
Liquidation Preference and Ranking. The shares of PRIDES rank prior to the
Common Stock as to payment of dividends and distribution of assets upon
liquidation. The liquidation preference of each share of PRIDES is an amount
equal to the sum of (i) $61.125 per share and (ii) all accrued and unpaid
dividends thereon.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS OF CONSECO
Certain provisions of the Articles of Incorporation and the Bylaws of the
Company (the "Bylaws") may make it more difficult to effect a change in control
of the Company if the Board of Directors determines that such action would not
be in the best interests of the shareholders. It could be argued, contrary to
the belief of the Board of Directors, that such provisions are not in the best
interests of the shareholders to the extent that they will have the effect of
tending to discourage possible takeover bids, which might be at prices involving
a premium over then recent market quotations for the Common Stock. The most
important of those provisions are described below.
The Articles of Incorporation authorize the establishment of a classified
Board of Directors pursuant to the Bylaws. The Bylaws, in turn, provide that the
Directors serve staggered three-year terms, with the members of only one class
being elected in any year.
A classified Board of Directors may increase the difficulty of removing
incumbent directors, providing such directors with enhanced ability to retain
their positions. A classified Board of Directors may also make the acquisition
of control of the Company by a third party by means of a proxy contest more
difficult. In addition, the classification may make it more difficult to replace
a majority of directors for business reasons unrelated to a change in control.
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The Articles of Incorporation provide that holders of the Company's voting
stock shall not be entitled to vote on certain business transactions (defined to
include, among other things, certain mergers, consolidations, sales, leases,
transfers or other dispositions of a substantial part of the Company's assets)
with certain related persons (which includes persons beneficially owning more
than 10% of the Company's outstanding voting stock), nor may such business
combination transactions be effected, unless (i) the relevant business
combination shall have been approved by two-thirds of the continuing directors
or (ii) the aggregate amount of the cash and the fair value of any consideration
other than cash to be received by any holder of the Common Stock or Preferred
Stock in the business combination for each such share of Common Stock or
Preferred Stock shall be at least equal to the highest per share price paid by
the related person in order to acquire any shares of Common Stock or Preferred
Stock, as the case may be, beneficially owned by such related person.
As discussed above, Preferred Stock may be issued from time to time in one
or more series with such rights, preferences, limitations and restrictions as
may be determined by the Board of Directors. The issuance of Preferred Stock
could be used, under certain circumstances, as a method of delaying or
preventing a change of control of the Company and could have a detrimental
effect on the rights of holders of Common Stock, including loss of voting
control.
The provisions of the Articles of Incorporation regarding the classified
Board of Directors and certain business combination transactions may not be
amended without the affirmative approval of holders of not less than 80% of the
outstanding voting stock of the Company.
The Bylaws may be amended by majority vote of the Board of Directors.
CERTAIN PROVISIONS OF CORPORATE AND INSURANCE LAWS
In addition to the Articles of Incorporation and Bylaws, certain provisions
of Indiana law may delay, deter or prevent a merger, tender offer or other
takeover attempt of the Company.
Under the Indiana Business Corporation Law (the "IBCL"), a director may, in
considering the best interests of a corporation, consider the effects of any
action on shareholders, employees, suppliers and customers of the corporation,
on communities in which offices or other facilities of the corporation are
located, and any other factors the director considers pertinent.
The IBCL provides that no business combination (defined to include certain
mergers, sales of assets, sales of 5% or more of outstanding stock, loans,
recapitalizations or liquidations or dissolutions) involving a corporation and
an interested shareholder (defined to include any holder of 10% or more of such
corporation's voting stock) may be entered into unless (1) it has been approved
by the board of directors of the corporation or (2) (a) five years have expired
since the acquisition of shares of the corporation by the interested
shareholder, (b) all requirements of the corporation's articles of incorporation
relating to business combinations have been satisfied and (c) either (i) a
majority of shareholders of the corporation (excluding the interested
shareholder) approve the business combination or (ii) all shareholders are paid
fair value (as defined in the statute) for their stock. However, such law does
not restrict any offer to purchase all of a corporation's shares.
The IBCL also provides that when a target corporation (such as the
Company), incorporated in Indiana and having its principal place of business,
principal office or substantial assets in Indiana, has a certain threshold of
ownership by Indiana residents, any acquisition which, together with its
previous holdings, gives the acquiror at least 20% of the target's voting stock
triggers a shareholder approval mechanism. If the acquiror files a statutorily
required disclosure statement, the target's management has 50 days within which
to hold a special meeting of shareholders at which all disinterested
shareholders of the target (those not affiliated with the acquiror or any
officer or inside director of the target) consider and vote upon whether the
acquiror shall have voting rights with respect to the shares of the target held
by it. Without shareholder approval, the shares acquired by the acquiror have no
voting rights. If the acquiror fails to file the statutorily required disclosure
statement, the target can redeem the acquiror's shares at a price to be
determined according to
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procedures devised by the target. In order for these provisions of the IBCL not
to apply to a particular Indiana company, the company must affirmatively so
provide in its articles of incorporation or bylaws.
In addition, the insurance laws and regulations of the jurisdictions in
which the Company's insurance subsidiaries do business may impede or delay a
business combination involving the Company.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below of certain provisions of the Deposit
Agreement (as defined below) and of the Depositary Shares and Depositary
Receipts summarizes the material terms of the Deposit Agreement and of the
Depositary Shares and Depositary Receipts and is qualified in its entirety by
reference to the form of Deposit Agreement and form of Depositary Receipts
relating to each series of the Preferred Stock, as well as the Articles of
Incorporation or any required amendment thereto describing the applicable series
of Preferred Stock.
GENERAL
The Company may, as its option, elect to have shares of Preferred Stock be
represented by Depositary Shares. The shares of any series of the Preferred
Stock underlying the Depositary Shares will be deposited under a separate
deposit agreement (the "Deposit Agreement") to be entered into by the Company
and a bank or trust company selected by the Company (the "Preferred Stock
Depositary"). The Prospectus Supplement relating to a series of Depositary
Shares will set forth the name and address of the Preferred Stock Depositary.
Subject to the terms of the Deposit Agreement, each owner of a Depositary Share
will be entitled, proportionately, to all the rights, preferences and privileges
of the Preferred Stock represented thereby (including dividend, voting,
redemption, conversion, exchange and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement, each of which will represent the fractional
interest in the number of shares of a particular series of the Preferred Stock
described in the applicable Prospectus Supplement.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions in respect of the series of Preferred Stock represented by
the Depositary Shares to the record holders of Depositary Receipts in
proportion, insofar as possible, to the number of Depositary Shares owned by
such holders. The Depositary, however, will distribute only such amount as can
be distributed without attributing to any Depositary Share a fraction of one
cent, and any balance not so distributed will be added to and treated as part of
the next sum received by the Depositary for distribution to record holders of
Depositary Receipts then outstanding.
In the event of a distribution other than in cash in respect of the
Preferred Stock, the Preferred Stock Depositary will distribute property
received by it to the record holders of Depositary Receipts in proportion,
insofar as possible, to the number of Depositary Shares owned by such holders,
unless the Preferred Stock Depositary determines (after consultation with the
Company) that it is not feasible to make such distribution, in which case the
Preferred Stock Depositary may, with the approval of the Company, adopt such
method as it deems equitable and practicable for the purpose of effecting such
distribution, including a public or private sale, of such property, and
distribution of the net proceeds from such sale to such holders.
The amount so distributed to record holders of Depositary Receipts in any
of the foregoing cases will be reduced by any amount required to be withheld by
the Company or the Preferred Stock Depositary on account of taxes.
CONVERSION AND EXCHANGE
If any series of Preferred Stock underlying the Depositary Shares is
subject to provisions relating to its conversion or exchange, as set forth in
the applicable Prospectus Supplement relating thereto, each record
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holder of Depositary Receipts will have the right or obligation to convert or
exchange the Depositary Shares represented by such Depositary Receipts pursuant
to the terms thereof.
REDEMPTION OF DEPOSITARY SHARES
If any series of Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Preferred Stock Depositary resulting from the redemption, in
whole or in part, of the Preferred Stock held by the Preferred Stock Depositary.
Whenever the Company redeems Preferred Stock from the Preferred Stock
Depositary, the Preferred Stock Depositary will redeem as of the same redemption
date a proportionate number of Depositary Shares representing the shares of
Preferred Stock that were redeemed. If less than all the Depositary Shares are
to be redeemed, the Depositary Shares to be redeemed will be selected by lot or
pro rata as may be determined by the Company.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
redemption price upon such redemption. Any funds deposited by the Company with
the Preferred Stock Depositary for any Depositary Shares which the holders
thereof fail to redeem shall be returned to the Company after a period of two
years from the date such funds are so deposited.
VOTING
Upon receipt of notice of any meeting at which the holders of any shares of
Preferred Stock underlying the Depositary Shares are entitled to vote, the
Preferred Stock Depositary will mail the information contained in such notice to
the record holders of the Depositary Receipts. Each record holder of such
Depositary Receipts on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the Preferred
Stock Depositary as to the exercise of the voting rights pertaining to the
number of shares of Preferred Stock underlying such holder's Depositary Shares.
The Preferred Stock Depositary will endeavor, insofar as practicable, to vote
the number of shares of Preferred Stock underlying such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting any of the Preferred Stock
to the extent it does not receive specific written instructions from holders of
Depositary Receipts representing such Preferred Stock.
RECORD DATE
Whenever (i) any cash dividend or other cash distribution shall become
payable, any distribution other than cash shall be made, or any rights,
preferences or privileges shall be offered with respect to the Preferred Stock,
or (ii) the Preferred Stock Depositary shall receive notice of any meeting at
which holders of Preferred Stock are entitled to vote or of which holders of
Preferred Stock are entitled to notice, or of the mandatory conversion of, or
any election on the part of the Company to call for the redemption of, any
Preferred Stock, the Preferred Stock Depositary shall in each such instance fix
a record date (which shall be the same as the record date for the Preferred
Stock) for the determination of the holders of Depositary Receipts (x) that
shall be entitled to receive such dividend, distribution, rights, preferences or
privileges or the net proceeds of the sale thereof or (y) that shall be entitled
to give instructions for the exercise of voting rights at any such meeting or to
receive notice of such meeting or of such redemption or conversion, subject to
the provisions of the Deposit Agreement.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of Depositary Receipts at the principal office of the
Preferred Stock Depositary, upon payment of any unpaid amount due the Preferred
Stock Depositary, and subject to the terms of the Deposit Agreement, the owner
of the Depositary Shares evidenced thereby is entitled to delivery of the number
of whole shares of Preferred Stock and all money and other property, if any,
represented by such Depositary Shares. Partial shares of Preferred Stock will
not be issued. If the Depositary Receipts delivered by the holder
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evidence a number of Depositary Shares in excess of the number of Depositary
Shares representing the number of whole shares of Preferred Stock to be
withdrawn, the Preferred Stock Depositary will deliver to such holder at the
same time a new Depositary Receipt evidencing such excess number of Depositary
Shares. Holders of Preferred Stock thus withdrawn will not thereafter be
entitled to deposit such shares under the Deposit Agreement or to receive
Depositary Receipts evidencing Depositary Shares therefor.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Deposit Agreement will provide that the form of Depositary Receipt and
any provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Preferred Stock Depositary. However, any amendment
which imposes or increases any fees, taxes or other charges payable by the
holders of Depositary Receipts (other than taxes and other governmental charges,
fees and other expenses payable by such holders as stated under "Charges of
Preferred Stock Depositary"), or which otherwise prejudices any substantial
existing right of holders of Depositary Receipts, will not take effect as to
outstanding Depositary Receipts until the expiration of 90 days after notice of
such amendment has been mailed to the record holders of outstanding Depositary
Receipts.
Whenever so directed by the Company, the Preferred Stock Depositary will
terminate the Deposit Agreement by mailing notice of such termination to the
record holders of all Depositary Receipts then outstanding at least 30 days
prior to the date fixed in such notice for such termination. The Preferred Stock
Depositary may likewise terminate the Deposit Agreement if at any time 45 days
shall have expired after the Preferred Stock Depositary shall have delivered to
the Company a written notice of its election to resign and a successor
depositary shall not have been appointed and accepted its appointment. If any
Depositary Receipts remain outstanding after the date of termination, the
Preferred Stock Depositary thereafter will discontinue the transfer of
Depositary Receipts, will suspend the distribution of dividends to the holders
thereof, and will not give any further notices (other than notice of such
termination) or perform any further acts under the Deposit Agreement except as
provided below and except that the Preferred Stock Depositary will continue (i)
to collect dividends on the Preferred Stock and any other distributions with
respect thereto and (ii) to deliver the Preferred Stock together with such
dividends and distributions and the net proceeds of any sales of rights,
preferences, privileges or other property, without liability for interest
thereon, in exchange for Depositary Receipts surrendered. At any time after the
expiration of two years from the date of termination, the Preferred Stock
Depositary may sell the Preferred Stock then held by it at public or private
sales, at such place or places and upon such terms as it deems proper, and may
thereafter hold the net proceeds of any such sale, together with any money and
other property then held by it, without liability for interest thereon, for the
pro rata benefit of the holders of Depositary Receipts which have not been
surrendered.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all charges of the Preferred Stock Depositary
including charges in connection with the initial deposit of the Preferred Stock,
the initial issuance of the Depositary Receipts, the distribution of information
to the holders of Depositary Receipts with respect to matters on which Preferred
Stock is entitled to vote, withdrawals of the Preferred Stock by the holders of
Depositary Receipts or redemption or conversion of the Preferred Stock, except
for taxes (including transfer taxes, if any) and other governmental charges and
such other charges as are expressly provided in the Deposit Agreement to be at
the expense of holders of Depositary Receipts or persons depositing Preferred
Stock.
MISCELLANEOUS
The Preferred Stock Depositary will make available for inspection by
holders of Depositary Receipts, at its Corporate Office and its New York Office,
all reports and communications from the Company which are delivered to the
Preferred Stock Depositary as the holder of Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The obligations of the
Preferred Stock Depositary under the Deposit Agreement are limited to performing
its
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duties thereunder without negligence or bad faith. The obligations of the
Company under the Deposit Agreement are limited to performing its duties
thereunder in good faith. Neither the Company nor the Preferred Stock Depositary
is obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished.
The Company and the Preferred Stock Depositary are entitled to rely upon advice
of or information from counsel, accountants or other persons believed to be
competent and on documents believed to be genuine.
The Preferred Stock Depositary may resign at any time or be removed by the
Company, effective upon the acceptance by its successor of its appointment;
provided, that if a successor Preferred Stock Depositary has not been appointed
or accepted such appointment within 45 days after the Preferred Stock Depositary
has delivered a notice of election to resign to the Company, the Preferred Stock
Depositary may terminate the Deposit Agreement. See "Amendment and Termination
of the Deposit Agreement" above.
DESCRIPTION OF WARRANTS
GENERAL
The Company may issue Warrants to purchase Debt Securities, Preferred
Stock, Common Stock or any combination thereof, and such Warrants may be issued
independently or together with any such Securities and may be attached to or
separate from such Securities. Each series of Warrants will be issued under a
separate warrant agreement (each a "Warrant Agreement") to be entered into
between the Company and a warrant agent ("Warrant Agent"). The Warrant Agent
will act solely as an agent of the Company in connection with the Warrants of
each such series and will not assume any obligation or relationship of agency
for or with holders or beneficial owners of Warrants. The following sets forth
certain general terms and provisions of the Warrants offered hereby. Further
terms of the Warrants and the applicable Warrant Agreement will be set forth in
the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of any
Warrants in respect of which this Prospectus is being delivered, including the
following: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the currency or currencies, including composite currencies, in which the price
of such Warrants may be payable; (v) the designation and terms of the Securities
(other than Preferred Securities and Common Securities) purchasable upon
exercise of such Warrants; (vi) the price at which and the currency or
currencies, including composite currencies, in which the Securities (other than
Preferred Securities and Common Securities) purchasable upon exercise of such
Warrants may be purchased; (vii) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (viii)
whether such Warrants will be issued in registered form or bearer form; (ix) if
applicable, the minimum or maximum amount of such Warrants which may be
exercised at any one time; (x) if applicable, the designation and terms of the
Securities (other than Preferred Securities and Common Securities) with which
such Warrants are issued and the number of such Warrants issued with each such
Security; (xi) if applicable, the date on and after which such Warrants and the
related Securities (other than Preferred Securities and Common Securities) will
be separately transferable; (xii) information with respect to book-entry
procedures, if any; (xiii) if applicable, a discussion of certain United States
Federal income tax considerations; and (xiv) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
DESCRIPTION OF PREFERRED SECURITIES OF THE CONSECO TRUSTS
GENERAL
Each Conseco Trust may issue, from time to time, only one series of
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each Conseco Trust authorizes the Regular
Trustees of such Conseco Trust to issue on behalf of such Conseco Trust one
series of Preferred Securities. Each Declaration will be qualified as an
indenture under the Trust Indenture Act. The Institutional Trustee, an
independent trustee, will act as indenture trustee for the Preferred Securities
for purposes of compliance with the provisions of the Trust Indenture Act. The
Preferred Securities will have such terms,
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including distributions, redemption, voting, liquidation rights and such other
preferred, deferred or other special rights or such restrictions as shall be
established by the Regular Trustees in accordance with the applicable
Declaration or as shall be set forth in the Declaration or made part of the
Declaration by the Trust Indenture Act. Reference is made to any Prospectus
Supplement relating to the Preferred Securities of a Conseco Trust for specific
terms of the Preferred Securities, including, to the extent applicable, (i) the
distinctive designation of such Preferred Securities, (ii) the number of
Preferred Securities issued by such Conseco Trust, (iii) the annual distribution
rate (or method of determining such rate) for Preferred Securities issued by
such Conseco Trust and the date or dates upon which such distributions shall be
payable (provided, however, that distributions on such Preferred Securities
shall, subject to any deferral provisions, and any provisions for payment of
defaulted distributions, be payable on a quarterly basis to holders of such
Preferred Securities as of a record date in each quarter during which such
Preferred Securities are outstanding), (iv) any right of such Conseco Trust to
defer quarterly distributions on the Preferred Securities as a result of an
interest deferral right exercised by the Company on the Subordinated Debt
Securities held by such Conseco Trust; (v) whether distributions on Preferred
Securities shall be cumulative, and, in the case of Preferred Securities having
such cumulative distribution rights, the date or dates or method of determining
the date or dates from which distributions on Preferred Securities shall be
cumulative, (vi) the amount or amounts which shall be paid out of the assets of
such Conseco Trust to the holders of Preferred Securities upon voluntary or
involuntary dissolution, winding-up or termination of such Conseco Trust, (vii)
the obligation or option, if any, of such Conseco Trust to purchase or redeem
Preferred Securities and the price or prices at which, the period or periods
within which and the terms and conditions upon which Preferred Securities shall
be purchased or redeemed, in whole or in part, pursuant to such obligation or
option with such redemption price to be specified in the applicable Prospectus
Supplement, (viii) the voting rights, if any, of Preferred Securities in
addition to those required by law, including the number of votes per Preferred
Security and any requirement for the approval by the holders of Preferred
Securities as a condition to specified action or amendments to the Declaration,
(ix) the terms and conditions, if any, upon which Subordinated Debt Securities
held by such Conseco Trust may be distributed to holders of Preferred
Securities, and (x) any other relevant rights, preferences, privileges,
limitations or restrictions of Preferred Securities consistent with the
Declaration or with applicable law. All Preferred Securities offered hereby will
be guaranteed by the Company to the extent set forth below under "Description of
Trust Guarantees." The Trust Guarantee issued to each Conseco Trust, when taken
together with the Company's back-up undertakings, consisting of its obligations
under each Declaration (including the obligation to pay expenses of each Conseco
Trust), the applicable Indenture and any applicable supplemental indentures
thereto and the Subordinated Debt Securities issued to any Conseco Trust will
provide a full and unconditional guarantee by the Company of amounts due on the
Preferred Securities issued by each Conseco Trust. The payment terms of the
Preferred Securities will be the same as the Subordinated Debt Securities issued
to the applicable Conseco Trust by the Company.
Each Declaration authorizes the Regular Trustees to issue on behalf of the
applicable Trust one series of Common Securities having such terms including
distributions, redemption, voting, liquidation rights or such restrictions as
shall be established by the Regular Trustees in accordance with the Declaration
or as shall otherwise be set forth therein. The terms of the Common Securities
issued by each Conseco Trust will be substantially identical to the terms of the
Preferred Securities issued by such Conseco Trust, and the Common Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Preferred Securities except that, if an event of default under such Declaration
has occurred and is continuing, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Common Securities will also carry the right to
vote and to appoint, remove or replace any of the Conseco Trustees of such
Conseco Trust. All of the Common Securities of each Conseco Trust will be
directly or indirectly owned by the Company.
The financial statements of any Conseco Trust that issues Preferred
Securities will be reflected in the Company's consolidated financial statements
with the Preferred Securities shown as Company-obligated mandatorily-redeemable
preferred securities of a subsidiary trust under minority interest in
consolidated subsidiaries. In a footnote to the Company's audited financial
statements there will be included statements that the applicable Conseco Trust
is wholly-owned by the Company and that the sole asset of such Conseco
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Trust is the Subordinated Debt Securities (indicating the principal amount,
interest rate and maturity date thereof).
DESCRIPTION OF TRUST GUARANTEES
Set forth below is a summary of information concerning the Trust Guarantees
that will be executed and delivered by the Company for the benefit of the
holders, from time to time, of Preferred Securities. Each Trust Guarantee will
be qualified as an indenture under the Trust Indenture Act. Unless otherwise
specified in the applicable Prospectus Supplement, State Street Bank and Trust
Company will act as independent indenture trustee for Trust Indenture Act
purposes under each Trust Guarantee (the "Preferred Securities Guarantee
Trustee"). The terms of each Trust Guarantee will be those set forth in such
Trust Guarantee and those made part of such Trust Guarantee by the Trust
Indenture Act. The following summary does not purport to be complete and is
subject to and qualified in its entirety by reference to the provisions of the
form of Trust Guarantee, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, and the Trust
Indenture Act. Each Trust Guarantee will be held by the Preferred Securities
Guarantee Trustee for the benefit of the holders of the Preferred Securities of
the applicable Conseco Trust.
GENERAL
Unless otherwise specified in the applicable Prospectus Supplement,
pursuant to each Trust Guarantee, the Company will agree, to the extent set
forth therein, to pay in full to the holders of the Preferred Securities, the
Guarantee Payments (as defined below) (except to the extent paid by such Conseco
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which such Conseco Trust may have or assert. The following payments
or distributions with respect to the Preferred Securities (the "Guarantee
Payments"), to the extent not paid by such Conseco Trust, will be subject to the
Trust Guarantee (without duplication): (i) any accrued and unpaid distributions
that are required to be paid on such Preferred Securities, to the extent such
Conseco Trust shall have funds available therefor, (ii) the redemption price,
including all accrued and unpaid distributions to the date of redemption (the
"Redemption Price"), to the extent such Conseco Trust has funds available
therefor, with respect to any Preferred Securities called for redemption by such
Conseco Trust and (iii) upon a voluntary or involuntary dissolution, winding-up
or termination of such Conseco Trust (other than in connection with such
distribution of Subordinated Debt Securities to the holders of Preferred
Securities or the redemption of all of the Preferred Securities upon maturity or
redemption of the Subordinated Debt Securities) the lesser of (a) the aggregate
of the liquidation amount and all accrued and unpaid distributions on such
Preferred Securities to the date of payment, to the extent such Conseco Trust
has funds available therefor or (b) the amount of assets of such Conseco Trust
remaining for distribution to holders of such Preferred Securities in
liquidation of such Conseco Trust. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of Preferred Securities or by causing the applicable
Conseco Trust to pay such amounts to such holders.
Each Trust Guarantee will not apply to any payment of distributions except
to the extent the applicable Conseco Trust shall have funds available therefor.
If the Company does not make interest or principal payments on the Subordinated
Debt Securities purchased by such Conseco Trust, such Conseco Trust will not pay
distributions on the Preferred Securities issued by such Conseco Trust and will
not have funds available therefor.
The Company has also agreed to guarantee the obligations of each Conseco
Trust with respect to the Common Securities (the "Common Guarantee") issued by
such Conseco Trust to the same extent as the Trust Guarantee, except that, if an
Event of Default under the Subordinated Indenture has occurred and is
continuing, holders of Preferred Securities under the Trust Guarantee shall have
priority over holders of the Common Securities under the Common Guarantee with
respect to distributions and payments on liquidation, redemption or otherwise.
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<PAGE> 60
CERTAIN COVENANTS OF THE COMPANY
Unless otherwise specified in the applicable Prospectus Supplement, in each
Trust Guarantee, the Company will covenant that, so long as any Preferred
Securities issued by the applicable Conseco Trust remain outstanding, if there
shall have occurred any event of default under such Trust Guarantee or under the
Declaration of such Conseco Trust, then (a) the Company will not declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of capital stock of the Company in
connection with the satisfaction by the Company of its obligations under any
employee or agent benefit plans or the satisfaction by the Company of its
obligations pursuant to any contract or security outstanding on the date of such
event requiring the Company to purchase capital stock of the Company, (ii) as a
result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock, (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being converted or
exchanged, (iv) dividends or distributions in capital stock of the Company (or
rights to acquire capital stock) or repurchases or redemptions of capital stock
solely from the issuance or exchange of capital stock or (v) redemptions or
repurchases of any rights outstanding under a shareholder rights plan); (b) the
Company shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any debt securities issued by the Company which
rank junior to the Subordinated Debt Securities issued to the applicable Conseco
Trust and (c) the Company shall not make any guarantee payments with respect to
the foregoing (other than pursuant to a Trust Guarantee).
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent of such holders
will be required), each Trust Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities of such Conseco Trust. The manner of obtaining
any such approval of holders of such Preferred Securities will be set forth in
accompanying Prospectus Supplement. All guarantees and agreements contained in a
Trust Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Preferred Securities of the applicable Conseco Trust then outstanding.
EVENTS OF DEFAULT
An event of default under a Trust Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder. The
holders of a majority in liquidation amount of the Preferred Securities to which
such Trust Guarantee relates have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Preferred
Securities Guarantee Trustee in respect of such Trust Guarantee or to direct the
exercise of any trust or power conferred upon the Preferred Securities Guarantee
Trustee under such Trust Guarantee.
If the Preferred Securities Guarantee Trustee fails to enforce such Trust
Guarantee, any record holder of Preferred Securities to which such Trust
Guarantee relates may institute a legal proceeding directly against the Company
to enforce the Preferred Securities Guarantee Trustee's rights under such Trust
Guarantee without first instituting a legal proceeding against the applicable
Conseco Trust, the Preferred Securities Guarantee Trustee or any other person or
entity. Notwithstanding the foregoing, if the Company has failed to make a
Guarantee Payment under a Trust Guarantee, a record holder of Preferred
Securities to which such Trust Guarantee relates may directly institute a
proceeding against the Company for enforcement of such Trust Guarantee for such
payment to the record holder of the Preferred Securities to which such Trust
Guarantee relates of the principal of or interest on the applicable Subordinated
Debt Securities on or after the respective due dates specified in the
Subordinated Debt Securities, and the amount of the payment will be based on the
holder's pro rata share of the amount due and owing on all of the Preferred
Securities to which such Trust Guarantee relates. The Company has waived any
right or remedy to require that any action be brought first against the
applicable Conseco Trust or any other person or entity before proceeding
directly
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<PAGE> 61
against the Company. The record holder in the case of the issuance of one or
more global Preferred Securities certificates will be The Depository Trust
Company acting at the direction of the beneficial owners of the Preferred
Securities.
The Company will be required to provide annually to the Preferred
Securities Guarantee Trustee a statement as to the performance by the Company of
certain of its obligations under each outstanding Trust Guarantee and as to any
default in such performance.
INFORMATION CONCERNING THE PREFERRED SECURITIES GUARANTEE TRUSTEE
The Preferred Securities Guarantee Trustee, prior to the occurrence of a
default to a Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in such Trust Guarantee and, after default with respect
to such Trust Guarantee, shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provision, the Preferred Securities Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Trust Guarantee at
the request of any holder of Preferred Securities to which such Trust Guarantee
relates unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby.
TERMINATION
Each Trust Guarantee will terminate as to the Preferred Securities issued
by the applicable Conseco Trust upon full payment of the Redemption Price of all
Preferred Securities of such Conseco Trust, upon distribution of the
Subordinated Debt Securities held by such Conseco Trust to the holders of all of
the Preferred Securities of such Conseco Trust or upon full payment of the
amounts payable in accordance with the Declaration of such Conseco Trust upon
liquidation of such Conseco Trust. Each Trust Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Preferred Securities issued by the applicable Conseco Trust must restore
payment of any sums paid under such Preferred Securities or such Trust
Guarantee.
STATUS OF THE TRUST GUARANTEES
The Trust Guarantees will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, including the Subordinated Debt Securities, except
those liabilities of the Company made pari passu or subordinate by their terms,
(ii) pari passu with the most senior preferred or preference stock now or
hereafter issued by the Company and with any guarantee now or hereafter entered
into by the Company in respect of any preferred or preference stock of any
affiliate of the Company and (iii) senior to the Common Stock. The terms of the
Preferred Securities provide that each holder of Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of the
Trust Guarantee relating thereto.
Each Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under such Trust Guarantee
without instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Trust Guarantees will be governed by and construed in accordance with
the law of the State of New York.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
The Company may issue Stock Purchase Contracts, including contracts
obligating holders to purchase from the Company, and the Company to sell to the
holders, a specified number of shares of Common Stock, Preferred Stock or
Depositary Shares at a future date or dates. The consideration per share of
Common Stock, Preferred Stock or Depositary Shares may be fixed at the time the
Stock Purchase Contracts are issued or may be determined by reference to a
specific formula set forth in the Stock Purchase Contracts. The Stock
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<PAGE> 62
Purchase Contracts may be issued separately or as a part of units ("Stock
Purchase Units") consisting of a Stock Purchase Contract and Debt Securities,
Preferred Securities or debt obligations of third parties, including U.S.
Treasury securities, securing the holders' obligations to purchase the Common
Stock, Preferred Stock or Depositary Shares under the Stock Purchase Contracts.
The Stock Purchase Contracts may require the Company to make periodic payments
to the holders of the Stock Purchase Units or vice versa, and such payments may
be unsecured or prefunded on some basis. The Stock Purchase Contracts may
require holders to secure their obligations thereunder in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not necessarily be complete, and reference will be made to the
Stock Purchase Contracts, and, if applicable, collateral arrangements and
depositary arrangements, relating to such Stock Purchase Contracts or Stock
Purchase Units.
PLAN OF DISTRIBUTION
The Company and/or any Conseco Trust may sell any of the Securities being
offered hereby in any one or more of the following ways from time to time: (i)
through agents; (ii) to or through underwriters; (iii) through dealers; or (iv)
directly to purchasers.
The Prospectus Supplement with respect to the Securities will set forth the
terms of the offering of the Securities, including the name or names of any
underwriters, dealers or agents; the purchase price of the Securities and the
proceeds to the Company and/or a Conseco Trust from such sale; any underwriting
discounts and commissions or agency fees and other items constituting
underwriters' or agents' compensation; any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers and any
securities exchange on which such Securities may be listed. Any initial public
offering price, discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
Offers to purchase Securities may be solicited by agents designated by the
Company from time to time. Any such agent involved in the offer or sale of the
Securities in respect of which this Prospectus is delivered will be named, and
any commissions payable by the Company and/or the applicable Conseco Trust to
such agent will be set forth, in the applicable Prospectus Supplement. Unless
otherwise indicated in such Prospectus Supplement, any such agent will be acting
on a reasonable best efforts basis for the period of its appointment. Any such
agent may be deemed to be an underwriter, as that term is defined in the
Securities Act, of the Securities so offered and sold.
If Securities are sold by means of an underwritten offering, the Company
and/or the applicable Conseco Trust will execute an underwriting agreement with
an underwriter or underwriters at the time an agreement for such sale is
reached, and the names of the specific managing underwriter or underwriters, as
well as any other underwriters, and the terms of the transaction, including
commissions, discounts and any other compensation of the underwriters and
dealers, if any, will be set forth in the Prospectus Supplement which will be
used by the underwriters to make resales of the Securities in respect of which
this Prospectus is delivered to the public. If underwriters are utilized in the
sale of the Securities in respect of which this Prospectus is delivered, the
Securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices determined by
the underwriter at the time of sale. Securities may be offered to the public
either through underwriting syndicates represented by managing underwriters or
directly by the managing underwriters. If any underwriter or underwriters are
utilized in the sale of the Securities, unless otherwise indicated in the
Prospectus Supplement, the underwriting agreement will provide that the
obligations of the underwriters are subject to certain conditions precedent and
that the underwriters with respect to a sale of Securities will be obligated to
purchase all such Securities of a series if any are purchased.
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If a dealer is utilized in the sales of the Securities in respect of which
this Prospectus is delivered, the Company and/or the applicable Conseco Trust
will sell such Securities to the dealer as principal. The dealer may then resell
such Securities to the public at varying prices to be determined by such dealer
at the time of resale. Any such dealer may be deemed to be an underwriter, as
such term is defined in the Securities Act, of the Securities so offered and
sold. The name of the dealer and the terms of the transaction will be set forth
in the Prospectus Supplement relating thereto.
Offers to purchase Securities may be solicited directly by the Company
and/or the applicable Conseco Trust and the sale thereof may be made by the
Company and/or the applicable Conseco Trust directly to institutional investors
or others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such sales
will be described in the Prospectus Supplement relating thereto.
Agents, underwriters and dealers may be entitled under relevant agreements
to indemnification or contribution by the Company and/or the applicable Conseco
Trust against certain liabilities, including liabilities under the Securities
Act.
Agents, underwriters and dealers may be customers of, engage in
transactions with, or perform services for, the Company and its subsidiaries in
the ordinary course of business.
Securities may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for the Company and/or the applicable Conseco Trust. Any
remarketing firm will be identified and the terms of its agreement, if any, with
its compensation will be described in the applicable Prospectus Supplement.
Remarketing firms may be deemed to be underwriters, as such term is defined in
the Securities Act, in connection with the Securities remarketed thereby.
Remarketing firms may be entitled under agreements which may be entered into
with the Company and/or the applicable Conseco Trust to indemnification or
contribution by the Company and/or the applicable Conseco Trust against certain
civil liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for Conseco and
its subsidiaries in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company and/or
the applicable Conseco Trust may authorize agents, underwriters or dealers to
solicit offers by certain types of institutions to purchase Securities from the
Company and/or the applicable Conseco Trust at the public offering prices set
forth in the applicable Prospectus Supplement pursuant to delayed delivery
contracts ("Contracts") providing for payment and delivery on a specified date
or dates in the future. A commission indicated in the applicable Prospectus
Supplement will be paid to underwriters, dealers and agents soliciting purchases
of Securities pursuant to Contracts accepted by the Company and/or the
applicable Conseco Trust.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
Prospectus, any Prospectus Supplement or any document incorporated by reference
herein relative to markets for the products of the Company or Green Tree
Financial Corporation ("Green Tree") and trends in the Company's or Green Tree's
operations or financial results, as well as other statements including words
such as "anticipate," "believe," "plan," "estimate," "expect," "intend," and
other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (1) general economic conditions and other factors, including
prevailing interest rate levels, short-term interest rate fluctuations, stock
market performance and health care inflation, which may affect the ability of
the Company to sell its products, the ability of Green Tree to make loans and
access capital resources, the market value of the Company's or Green Tree's
investments, the lapse rate and profitability of the Company's policies and the
level of defaults and prepayments of loans made by Green Tree; (2) the Company's
ability to
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achieve anticipated levels of operational efficiencies at recently acquired
companies, as well as through other cost-saving initiatives; (3) customer
response to new products, distribution channels and marketing initiatives; (4)
mortality, morbidity, usage of health care services and other factors which may
affect the profitability of the Company's insurance products; (5) changes in the
Federal income tax laws and regulations which may affect the relative tax
advantages of some of the Company's products; (6) increasing competition in the
sale of insurance and annuities and in the consumer finance business; (7)
regulatory changes or actions, including those relating to regulation of
financial services affecting (among other things) bank sales and underwriting of
insurance products, regulation of the sale, underwriting and pricing of
insurance products, and health care regulation affecting the Company's
supplemental health insurance products; (8) the availability and terms of future
acquisitions; and (9) the risk factors or uncertainties listed from time to time
in any Prospectus Supplement or any document incorporated by reference herein.
In addition to the above, these statements are subject to uncertainties related
to the synergies, charges and expenses associated with the Green Tree Merger.
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, the
legal validity of Securities (other than the Preferred Securities) will be
passed upon for the Company by John J. Sabl, Executive Vice President, General
Counsel and Secretary of the Company. Mr. Sabl is a full-time employee of the
Company and owns 75,000 shares and holds options to purchase 450,000 shares of
Common Stock.
Unless otherwise indicated in the applicable Prospectus Supplement, certain
matters of Delaware law relating to the validity of the Preferred Securities
will be passed upon for the Conseco Trusts by Richards, Layton & Finger, P.A.,
Wilmington, Delaware, special Delaware counsel to the Conseco Trusts.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997 incorporated by reference in this Prospectus, have been
audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in
their reports thereon included therein and are incorporated herein by reference
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of Green Tree at December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1997,
included in the Current Report on Form 8-K dated June 3, 1998, which is
incorporated by reference in this Prospectus, have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as set forth in their
report thereon incorporated by reference herein, and are incorporated by
reference in reliance upon such report, given upon authority of such firm as
experts in accounting and auditing.
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10,000,000
PREFERRED SECURITIES
CONSECO FINANCING
TRUST VII
% TRUST ORIGINATED
PREFERRED SECURITIES
("TOPRSSM")
FULLY AND UNCONDITIONALLY
GUARANTEED BY
CONSECO, INC.
------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
CIBC WORLD MARKETS
CREDIT SUISSE FIRST BOSTON
AUGUST , 1999
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